Federal Reserve Chairman Jerome Powell's speech helped various major currencies to halt the US dollar's rally.

The greenback weakened slightly in the second half of the New York session on Thursday, October 20, following reports of Federal Reserve Chairman Jerome Powell's speech at the Economic Club of New York. The US Dollar Index (DXY) declined by approximately 0.3% to 106.24 as of the time this news was written, remaining within the sideways range established since the end of the previous week.

us dollar index

Federal Reserve Chairman Jerome Powell stated that current inflation is still too high while monetary policy is not too tight. However, he acknowledged that "higher interest rates are challenging for everyone." He also noted that the recent increase in bond yields in the market has significantly tightened monetary conditions.

Powell's statement reminds market participants of the views of some Fed officials who urged the central bank to be cautious about raising interest rates amid rising US Treasury yields. As a result, the speech is considered somewhat dovish.

"The comments were marginally more dovish, but he was careful to leave the door open to more tightening if the economic circumstances warrant that. I think it was a pretty even-handed message," said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.

"Financial conditions are tightening. There's no getting around that. It moves the needle towards the Fed doing less rather than more," Osborne said.

Fed Funds Futures now imply a 30% chance of further Fed interest rate hikes by the end of this year. Before Powell's speech, the probability was around 40%. This means that most market participants no longer expect the Fed to raise interest rates at the FOMC meetings on October 30-31 or December 12-13.

This shift has helped various major currencies to halt the US dollar's rally. EUR/USD is using this situation to test the 1.0600 threshold again. GBP/USD is building stronger support around the 1.2140 level. Meanwhile, the USD/JPY rally is again held just below 150.00.

Despite this, the position of the US dollar is still supported by safe-haven demand related to the Israel-Palestine conflict. The Israeli Defense Minister told his troops, "You will soon see Gaza from the inside," causing concern about an escalation of the situation soon. The US and the UK have also instructed their citizens to leave Lebanon immediately.