Powell Dampens Hopes For Rate Cuts

The foreign exchange market is abuzz. While the American Federal Reserve maintains a cautious stance on interest rates, the dollar is sinking against major currencies. In an environment of economic uncertainty, characterized by rising inflation and trade tensions revived by Donald Trump, investors and analysts scrutinize every statement from Fed Chairman Jerome Powell. His appearance before the Senate confirmed that the monetary institution would not hasten the rate cuts, despite market expectations. Meanwhile, the announcement of new protectionist measures by the U.S. executive fuels fears of a tightening global economic climate.

Powell dampens expectations on rates, dollar retreats

“The American economy is strong overall,” affirmed Jerome Powell during his hearing before the Senate this Tuesday, February 11, 2025. This justifies the Federal Reserve’s wait-and-see approach regarding monetary policy. Despite an inflation rate still above the 2 % target, the Fed does not anticipate any further rate cuts in the short term. Market expectations now reflect a limited monetary easing of 35 basis points by the end of the year, which would represent a single full reduction and a potential second partial one. In light of this cautious posture, the dollar has lost 0.17 %, settling at 108.18 on the greenback index.

Attention now turns to the inflation figures for January, expected this Wednesday. If these data confirm the persistence of high inflation, they could force the Fed to extend its restrictive approach, thereby limiting any hopes for an aggressive cycle of rate cuts. Powell will continue his testimony before the House of Representatives, a new test for the market, which will attempt to refine its expectations regarding the American monetary trajectory.

Trump reignites the trade war, euro and commodities on alert

Meanwhile, the market has to deal with a new surge in protectionism. Donald Trump announced a 25 % increase in tariffs on all steel and aluminum imports, reviving the specter of a trade war with the European Union. “The threat of new American taxes remains, including against the European Union. A retaliation could even lead to an extreme scenario of a global trade war,” alerted Athanasios Vamvakidis, head of Forex research at Bank of America.

These announcements have immediately provoked reactions in the forex market. The euro rose by 0.22 %, reaching 1,033$, while the Japanese yen lost ground against the dollar, dropping by 0.3 % to 152.45. In this uncertain environment, investors are turning to safe-haven assets, notably gold, which is experiencing a resurgence of interest. Volatility is also affecting the crypto sector. Bitcoin fell by 0.40 %, trading at 96,192.60$.

As the Fed maintains its course and the White House hardens its trade approach, tensions are rising in global markets. A potential escalation of protectionist measures could amplify inflationary pressures in the United States and further weaken global growth. The evolution of the economic climate will now depend on Powell’s next statements and the countermeasures adopted by Washington’s trade partners.