THE US dollar slipped to a one-month low against the euro on Wednesday (Mar 6) after Federal Reserve chair Jerome Powell said continued progress on inflation “is not assured,” though the central bank still expects to reduce its benchmark interest rate later this year.
“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,”
Powell said in remarks prepared for delivery to the House Financial Services Committee.
The euro was 0.28 per cent higher against the US dollar at US$1.08865, its highest since Feb 2.
“Fed chairman Powell’s opening statement to Congress essentially repeated the same main points that he and his colleagues have been hitting for months,” Matt Weller, head of market research at StoneX, said.
But Powell’s words disappointed traders, who in recent weeks had begun to speculate that the Fed would back away from any potential for interest rate cuts in the first half of the year, Weller said.
“With Fed chairman Powell refusing to endorse that possibility, some forward-thinking traders have reversed bullish bets on the greenback from the past couple weeks,” he said.
The House hearing on Wednesday will be followed by one before the Senate Banking Committee on Thursday.
The US dollar index, which measures the currency’s strength against a basket of six currencies, was down 0.30 per cent to 103.47. The index had climbed as high as 104.97, up about 3.6 per cent for the year, in mid February, helped by robust US economic data, but has retreated as recent data showed some softness.
Data on Wednesday showed US private payrolls rose slightly less than expected in February, while wages for workers remaining in their jobs increased at the slowest pace in 2½ years, consistent with a cooling labour market. The report comes ahead of the release on Friday of the Labor Department’s more comprehensive and closely watched employment report for February.
The US dollar slipped on Tuesday after data showed US services industry growth slowed last month.
Traders also braced for the ECB’s interest rate decision on Thursday with the central bank expected to leave rates at a record 4 per cent, putting the focus on clues about when cuts may begin.
“We think they are going to echo their message again and tomorrow is not going to change the outlook,” Danske Bank’s Mellin said.
“The ECB is on the path to ease in June.”
Elsewhere, Sterling edged up 0.13 per cent to US$1.2723 as traders digested Britain’s latest fiscal plans, possibly the last budget before an election expected later in the year.
British finance Minister Jeremy Hunt offered no surprises in his latest statement, announcing a two percentage point cut to National Insurance Contributions (NICs), while freezing fuel and alcohol duty.
Meanwhile, Bitcoin was up 4.1 per cent at US$65,911, rebounding from Tuesday’s sharp swoon after it hit a new high. The cryptocurrency’s recent price rise has been fuelled by investors pouring money into US spot exchange-traded crypto products and the prospect that global interest rates may fall.
Against the yen, the US dollar was 0.43 per cent lower at 149.4 yen amid reports that some Bank of Japan board members think it would be appropriate to lift rates from negative territory at the March meeting.
Analysts are mostly expecting the BOJ to exit negative rates at the April meeting if Japan’s spring wage negotiations result in solid pay hikes.
The US dollar was 0.42 per cent weaker against its Canadian counterpart after the Bank of Canada kept its key overnight rate steady at 5 per cent on Wednesday as expected and said it was still too early to consider a cut, given the persistence of underlying inflation.
The Australian dollar brushed off gross domestic product data that showed the economy grew a mere 0.2 per cent in the fourth quarter, reinforcing the case for rate cuts. The currency was last up 0.7 per cent at US$0.65495. REUTERS
