Hawkish vs Dovish

Here is what you need to know on Wednesday, September 22. Fed Chair Jerome Powell is holding a press conference, this conference will be decisive of the market reaction for the other half of the week. The softer inflation and the disappointing job reports recorded this month could keep Powell from delivering a message of coming up tightening.

Investors have been wondering about the date of tapering. Back in August, because of the increase in the spread of the Delta variant, the Fed Chair clarified that September tapering “Septaper” is off the agenda. However, the August Nonfarm Payroll report was showing an increase of only 235,000 jobs which was far away from its forecast. And the consumer price index for last month’s report has also surprised the investors by its negative downside, decelerating to 4%. Overall, with the lack of a taper decision, the focus is on Fed Chair Powell’s words.

What are the three ways that could lower the dollar?

To begin with, hint toward December tapering. The taper timing is critical, but Powell promised to give the market a heads-up. This hint drove us back to August scenario where USD have shown a bearish movement after striking a 3 weeks high.

Secondly, Paint-dry taper. Giving the market a heads up, could pursue the investors to raise the other question, about how long the process could take. Some claim that it could take 8 months, but the Fed could spread it out for a longer period. A paint dry taper is referred to as a boring process.

Finally, rate hikes from tapering. After tapering, investing in stocks becomes less attractive and the dollar rises. The market will notice a huge downtrend on the stocks.

The alternative scenario:

A higher inflation will push prices higher. The effect of higher inflation could pressure Powell on making the taper decision sooner or later. In addition, on the labor perspective, tapering will help the United States to reach its full employment.

In conclusion, the chance of a hawkish scenario is low. The fed may set to leave its policy unchanged, and hint about the next step. The chance of a dovish message is higher today.

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