- NZD/USD fell more than 1% on Friday in a risk-off mood.
- Powell said that would “bring some pain to households and businesses” in reaching the Fed’s 2% target.
- US inflation data shows signs of peaking as US consumer sentiment improves.
NZD/USD fell to fresh weekly lows of 0.8150 on Friday following hawkish remarks from US Federal Reserve Chairman Jerome Powell, who reiterated the Fed’s work to restore price stability towards the bank’s 2% target. He further acknowledged that this “will require a sustained period of below-trend growth.” As a result, the mood has changed with the US stocks falling off a cliff.
NZD/USD falls on Powell’s hawkish remarks and positive US economic data
In the Asian session, NZD/USD opened above 0.6220 and traded in the 0.6180-0.6220 range before the release of US economic data and Powell’s Jackson Hole remarks. However, once Powell took the stand, NZD/USD rallied as volatility increased, sending the major to weekly lows. At the time of writing, NZD/USD is exchanging hands at 0.6148, well below its opening price.
Summing up Powell’s remarks, he said the reduction in inflation “will bring some pain to households and businesses” amid a period of higher interest. rates, softening of labor market conditions and slow economic growth. The Fed chairman reiterated that the Fed will “reduce inflation back to our 2% target” and noted that the central bank is taking quick steps to curb demand so it can better accommodate supply.
Jay Powell welcomed July’s inflation data, but was quick to add that “the improvement in a single month falls far short of what the Committee needs to see” in terms of the direction of inflation. Powell noted that neutral is “not a place to stop or pause,” contrary to market perceptions. Fed the pivot that triggered a 15% recovery in US stocks from June lows.
Besides this, American Economic Calendar revealed the University of Michigan consumer sentiment for August in its final release. US citizen sentiment improved to 58.2 vs. 55.2 estimates, while one-year inflation expectations fell to 4.8% from 5.2% last month.
Earlier on Friday, the popular gauge of inflation, the headline and the Fed’s core personal consumption expenditure (PCE) price indexes for July. Total PCE rose 6.3% y/y, more than the 6.2% estimate, while core PCE, which excludes volatile items, slowed to 4.6% y/y vs. 4.7% forecast.