Tightening credit conditions means that “our policy rate may not need to rise as much as it would otherwise have to achieve our objectives,” Powell told a central bank conference in Washington.
“Powell wasn’t overtly dovish, but he certainly wasn’t a hawk,” said Eric Bregar, director of currency and precious metals risk management at Silver Gold Ball in Toronto.
“So you’re seeing the bond market covering hard bets, same with FX. That spoils the dollar’s bullish momentum heading into the weekend.”
This week Fed officials more or less pressed against bets on halting interest rates for the month of June given persistently high inflation.
After Powell’s comments, the rate futures market priced in a roughly 21% chance that the Fed will raise the benchmark rate at its June meeting by 25 basis points, with the majority of traders considering the pause. The bet for a rate hike was about 40% before the Fed chairman spoke.
The dollar index fell 0.24% to 103.08, after hitting a seven-week high in the previous session. For the week, the dollar posted a gain of 0.6%.
The dollar fell 0.7% against the yen to 137.76 yen, after rising to a six-month high of 138.745 earlier.
At the same time, the Republican chief negotiator said that negotiations between US House Republicans and Democratic President Joe Biden’s administration on raising the federal government’s $31.4 trillion debt ceiling have paused, while the White House said a deal is still possible.
“Until people are willing to have tough conversations about how to move forward and do the right thing, we’re not going to sit here and talk,” Rep. Garrett Graves, the chief negotiator appointed by House Speaker Kevin McCarthy to the talks, told reporters. He walked out of the talks on Friday.