One of the most important events of the day was the speech of the Vice President of the Federal Reserve, Richard Clarida. Many traders wondered what tone one of the most important people in the US central bank would take. Previously, another Fed central banker - Chris Waller - had taken a hawkish tone, and many wondered if Clarida would also follow the same path.
Clarida mainly referred to the economic situation, saying that the Fed expects a significant improvement of the economy and the condition of the labor market by the end of the year. He indicated that progress with regard to the start of the reduction of the QE program is being made. The central banker said that the Fed may start tapering if the conditions for significant progress were met, which at the same time was the baseline scenario for him. He stressed that the Fed did not want to surprise anyone by announcing a reduction in asset purchases. It is worth adding, however, that Clarida identified the spreading Delta variant as one of the significant risks. Fed decisions, in turn, are expected to depend on actual results, not prospects - and the outlook remains uncertain.
The market reaction is quite clear - the USD has appreciated significantly against the main currencies. Of course, the strong reading of ISM for services for July could also contribute to the stronger dollar. This may indicate that some market participants saw Clarida's comment as slightly hawkish - especially comments on tapering may suggest that the Fed may potentially announce a reduction in QE before the end of the year. Some investors expect the central bank to refer to this issue directly during the Jackson Hole Symposium (end of August) or during the September meeting (second half of September).
EURUSD pair rose after today's poor ADP reading and then fell sharply during Clarida's speech. The pair dived below the 100- and 200-hour moving averages as well as below the lower limit of the local descending channel. Source: xStation5
