South Africa's rand firmed on Wednesday as the dollar weakened after U.S. Federal Reserve Chairman Jerome Powell highlighted risks to the U.S. economy in remarks that could bolster expectations of an interest rate cut later this month.
In prepared remarks ahead of his two-day testimony to Congress, Powell said overall growth has also "moderated", while "there is a risk that weak inflation will be even more persistent than we now anticipate".
Prepared remarks for his testimony indicate Powell will tell lawmakers the present outlook is influenced at least partly by an ongoing trade conflict with China.
U.S. Federal Reserve Chairman Jerome Powell said on Wednesday that Facebook's plan to build a digital currency called Libra "cannot go forward" until serious concerns were addressed. The president also said on Sunday that the Federal Reserve would cut interest rates if it "knew what it was doing". USA equity markets got off to a bullish start to the day as the S&P 500 Index moved to make an all-time high after hitting the 3,000 mark - a remarkable level that traders have been optimistically eyeing over the past months.
Powell suggested last month the Fed could cut rates at its next policy meeting July 30, but experts feel a June jobs report that showed better-than-expected growth makes that less likely. Bets of the first United States rate cut since the financial crisis stand close to 95 per cent for the July 30-31 meeting.
"The Fed has never disappointed a market with such strong expectations of action", Joseph Lavorgna, chief economist for the Americas at Natixis, wrote in a recent analysis. "Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling and Brexit".
For months the president has been pressuring the Fed to cut rates.
The question is whether the Fed will still see a good argument for cutting interest rates after the strong U.S. June jobs data.
A cut could lift home and auto sales by lowering the borrowing costs for major purchases.
In his highly-anticipated testimony to Congress, Powell said many central bankers believed the case for lower rates "had strengthened" last month given the rising "crosscurrents" in the economy.
Powell will nearly certainly face questions about Fed independence, given that the bank has relatively quickly - if begrudgingly - shifted its stance to align with Trump's demands for reduced interest rates.
In late 2017, Trump nominated the Powell, an investment banker, to succeed Janet Yellen as chair of the Fed, the world's most powerful central bank.
Fed staff concluded the rise in world tariffs had a likely "material" impact on the slowdown in global trade previous year, and that "uncertainty surrounding trade policy could be leading firms to delay investment decisions and reduce capital expenditures".