The Dollar Rose Ahead of Powell's Speech
The dollar rose against a basket of currencies on Tuesday as investors awaited Federal Reserve Chairman Jerome Powell's speech for hints on whether a recent series of positive data and persistently rising inflation has changed his stance on monetary policy.
Powell will appear before Congress on Tuesday and Wednesday, before the highly anticipated February employment report on Friday. "The market is frightened, or worried, that Powell would imply a higher path for rates," said Adam Button, chief currency analyst at ForexLive in Toronto.
"I don't expect a clear signal from Powell in any way; the concern is that he'll be speaking so much that every slip of the tongue may be read as a signal by the market."
Investors are pricing in the Fed raising rates for a longer period as employment and other statistics remain good and inflation remains stubbornly high. Powell may be hesitant to signal a fresh hawkish change in the Fed's thinking unless it is obvious that recent economic trends are likely to continue.
"I don't believe the Fed wants to introduce any certainty right now... "I believe today's message will be Powell opening the door to a higher terminal rate without anticipating one," Button said.
Friday's employment report will reveal if January's blockbuster report, in which businesses created a much higher-than-expected 517,000 jobs, was a one-time blip or part of a longer-term trend. "Today's semi-annual testimony will be critical in determining if the US dollar can regain its momentum in the next week," MUFG senior currency analyst Lee Hardman said.
"If (Powell) stays cautious, the dollar index may fall further below 105.00 ahead of the release of the NFP report on Friday," Hardman said. The dollar index was recently up 0.34% versus a basket of currencies, closing at 104.59.
The euro fell by 0.28% to $1.0653. The Australian dollar fell after the Reserve Bank of Australia (RBA) lifted its cash rate by 25 basis points to the highest level in more than a decade, as predicted, but hinted it was nearing the end of its tightening cycle. It was last trading at $0.6654, down 1.14%. The US dollar increased by 0.25% to 136.26 Japanese yen.
Investors are anticipating Bank of Japan Governor Haruhiko Kuroda's last policy meeting on Thursday and Friday when the central bank is expected to maintain its ultra-loose monetary policy. According to data released on Tuesday, Japan's real earnings fell the most in almost nine years in January, as four-decade-high inflation pinched consumers' spending power.