The dollar continued its upward trend in line with expectations, supported by GDP data that came in stronger than expected, in addition to a clear hawkish tone from the Federal Reserve, which showed no signs of backing down from the political pressures exerted by President Donald Trump, according to analyses by Francesco Pesole, currency analyst at ING Bank.
Despite the Federal Open Market Committee acknowledging the state of economic slowdown, the press conference by Federal Reserve Chair Jerome Powell reflected a more hawkish stance, emphasizing that inflation still poses a short-term threat, and that adopting a moderately restrictive monetary policy remains necessary.
His statements appeared to be in direct conflict with Trump, who criticized the Fed for refusing to raise interest rates to combat inflation, leading to a heavy sell-off in US Treasury bonds, where the price of September contracts fell from 16 to 11 basis points.
Inflation and employment data may bolster the rise of the US dollar.
The US dollar benefited from these developments, continuing its strong performance, amid anticipation of core consumer price index data and employment figures that Powell referred to as pivotal indicators in the course of monetary policy. This data may contribute to re-pricing the US dollar curve, enhancing its gains in the upcoming period.
The GDP figures also showed a contraction in core personal consumption expenditures (PCE) of 2.54% on a quarterly basis. Based on data from previous months, the expected monthly contraction in June is 0.46%. Any slight revisions in the data could lead the market to further tightening, thereby enhancing the position of the US dollar in the global market.
Labor market resilience supports the strength of the US dollar.
In a related context, unemployment claims continued to decline for six consecutive weeks, marking the longest decline since August and September 2022. This strong performance reflects labor market resilience and is a supportive factor for the continued strength of the US dollar amid increasing investor optimism about the US economy.
With all these data points, it seems that the US dollar enjoys strong momentum, benefiting from robust macroeconomic data and the Fed's hawkish stance, which enhances its chances of remaining in a position of strength in global financial markets.
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