After a week of wide volatility, the dollar ended the week stronger. The main drivers were:
- The Appearance of Jerome Powell, chairman of the FED, to deliver the semi-annual monetary policy report to Congress.
- February U.S. labor market data.
- Suspension of operations of SVB Financial due to liquidity problems and after a failed attempt to raise capital.
The event that determined the final outcome for the dollar was Jerome Powell’s speech as he delivered his semi-annual monetary policy report to Congress. For two continuous days, he stated that the FED may increase the pace of policy rate hikes if data show that inflation pressures are persistent and aren’t easing at the desired pace. In line with this, he argued that the final level of interest rates may be higher than expected if necessary, that the FED’s ultimate objective will be to bring inflation to its medium-term target of 2%, and that they don’t consider ending increases early, considering the risks this has implied in the past. This implied that FX market participants will incorporate in their expectations the possibility of a 50bps increase at the March meeting and that contractionary monetary policy will be maintained for a longer time.
