The US dollar index traded lower in yesterday’s session after “dovish” comments by the Fed head Jerome Powell. There is the concept of a neutral rate, which is an estimate made by the Fed officials of what the Fed fund rates should be to keep the economy balanced. Fed officials have mentioned in the past that the neutral rate should be between 2.5 - 3.5 percent, an extensive range. Just one month ago, Powell said the Fed Funds rate was a “long way from neutral,” which was interpreted by the market as positive for the US dollar. As the Fed expects more rate hikes, the US dollar is more expensive. However, yesterday’s comments represent an important change, as he said that rates, “…remain just below the range that would be neutral for the economy.”
The gross domestic product revision for the third quarter was in line at 3.5 percent, but the core PCE price index month to month was revised down to 0.1 percent from 0.2 percent this morning. Housing data was weak with new home sales falling to the slowest pace since March 2016 (+544k versus +575k read). Inflation and housing could be a concern in Powell’s mind as well.