Date: 17 Jul 2018

Today at 1500h UK time Federal Reserve Chief Jerome Powell will deliver his first semi-annual testimony to Congress, with markets hanging on his every word. With that in mind traders might recall that in an interview on July 12 Powell said “I sleep pretty well on the economy right now. But, you know, I think, frankly the United States economy is in a good place from a cyclical standpoint close to our maximum employment and stable prices target.” That doesn’t sound like a man who is staying awake at night worrying about the possibility of trade wars even if, in the same interview, Powell acknowledged that the Fed is “hearing a rising level of concern about the effects of changes in trade policy.”  Going into the testimony traders could reasonably expect that the currency market’s valuation of the US dollar would already have incorporated the idea that while the Fed isn’t oblivious to developments in international trade, its gradualist approach to futher US rate hikes remains essentially intact given that it feels that domestically, as Powell said, the US economy is in a ‘good place from a cyclical standpoint.’ Congressmen are almost certain to raise the issue of trade tariffs when quizzing the Fed Chair. Traders might therefore wish to keep an ear open for how Powell responds to such questioning.