Powell Confirms Hike Rate in March, Dollar Increases

In a recent testimony, Powell said the March rate hike will be on schedule. If the US inflation spike persists, more aggressive interest rate hikes are possible.

The Fed Chair Jerome Powell said that the US central bank will begin to be wary of raising interest rates by 25 basis points at this month's meeting. In addition, he also indicated the central bank's readiness to move more aggressively if the spike in inflation is not resolved.

The market has so far been anticipating a quarter point hike in interest rates at the March 15-16 meeting. However, investors are still in the "wait and see" phase regarding the prospects for further interest rate hikes. In recent testimony before the US House of Representatives, Powell did not rule out plans to push interest rates to above 2.5 percent if several rate hikes fail to tame inflation.

It should be noted that the current US inflation rate is three times the central bank's target of only 2.0 percent. This is a serious concern for the administration of President Joe Biden and members of congress at the recent hearing.

In summary, Powell describes the current environment as a clash between solid market demand and supply chain constraints caused by the pandemic. Not to forget, Powell also called Russia's invasion of Ukraine a game changer because it had unpredictable consequences. Powell said that the Fed had started to analyze every possible scenario for the impact of the Russia-Ukraine war.

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"The near-term effects on the US economy of Russia's invasion of Ukraine, whether in terms of sanctions or what's going to happen, remain highly uncertain... For this reason, it is necessary for the Fed to make appropriate monetary policy decisions as the economy evolves and dynamics can change rapidly. We must be agile in adapting policy to current circumstances," Powell said.

US Dollar Strengthens

Powell's testimony more or less supports the movement of the US Dollar against other major currencies. DXY which measures the strength of the dollar in general is currently in the range of 97.55, strengthening 0.2 percent on a daily basis. The US dollar is known to have strengthened sharply against the Euro, but weakened against commodity currencies such as the AUD and CAD amid a surge in commodity prices.