Undervalued Dollar & Democrats’ Influence on Powell’s Rate Cut Plans

Undervalued Dollar & Democrats’ Influence on Powell’s Rate Cut Plans

Investors keenly await Jerome Powell’s semi-annual testimony, hoping for insight into specific timelines for interest rate cuts.

With expectations of three rate cuts this year, the market may undervalue the US dollar despite Powell’s likely ambiguity, seeing the absence of news as positive.

Federal Reserve Chair Jerome Powell is scheduled to present his semi-annual monetary policy testimony to the House and Senate starting this Wednesday. The market will be looking for Powell to provide a more specific timeline for interest rate cuts.

Currently, the market is pricing in three interest rate cuts by the Federal Reserve this year, with the first expected in June. However, the market is likely to be disappointed, with Powell keeping tight-lipped and echoing the sentiments of other Fed officials, suggesting that the first rate cut may occur “later this year.”

Although the market might be disappointed by the lack of a clear timeline, it will likely take no news as good news though and have no reason to amend their forecast to any time later than June. This could be undervaluing the US dollar, as the market overlooks “higher for even longer”. When the market finally comes to terms with this, targets for a stronger USD could include those levels designated on the chart.

What could break Powell’s tight lips is pressure from Democrats, who could advocate for interest rate cuts to support the strength of the economy in an election year.