US Dollar Falls as Powell Sticks to the Fed's Playbook.
The New Zealand dollar rose 0.02% to $0.63265, while the Australian dollar rose 0.11% to $0.69675 after rising more than 1% on Tuesday. The Reserve Bank of Australia raised its cash rate by 25 basis points on Tuesday, as expected, but reiterated that further increases were required, indicating a more hawkish policy stance than many had anticipated.
The dollar fell on Wednesday after Federal Reserve Chair Jerome Powell failed to offer new signs of a hawkish pushback against the United States' resilient labor market, prompting investors to bet that interest rates will not rise much further.
Powell acknowledged in a question-and-answer session before the Economic Club of Washington on Tuesday that interest rates may need to rise sooner than expected if economic conditions remained strong, but he reiterated his belief that a process of disinflation was underway.
After falling in the previous session as Powell spoke, the US dollar struggled to recover its losses in Asia trade on Wednesday.
Sterling gained 0.06% to $1.2057, recovering from a one-month low of $1.19615 on Tuesday. Similarly, the euro was last 0.04% higher at $1.0732, having dropped to $1.06695 in the previous session, its lowest level since January 9.
Powell "didn't necessarily say anything tangibly new.... I think we're becoming quite accustomed to the idea that the Fed is now certainly data dependent," said Chris Weston, Pepperstone's head of research.
"The markets and the central bank are all in a position now where they're just watching the data, so we're less sensitive to Fed officials and far more sensitive to data for the time being."
The US dollar index held steady against a basket of currencies, at 103.31, after falling 0.3% the previous session. Following Friday's blockbuster jobs report, which showed that nonfarm payrolls increased by 517,000 jobs last month, the dollar experienced a brief rally.
The US dollar index rose to a one-month high of 103.96 on Tuesday as investors raised their expectations of how far the Fed could raise interest rates.
Markets expect the Fed funds rate to peak just above 5.1% by June, according to futures pricing. In other news, the Japanese yen rose 0.16% to 130.88 per dollar, following a 1.2% gain in the previous session.
According to Reuters, Japan's government is considering presenting its nominees for the next Bank of Japan governor and two deputy governors to parliament next week. The New Zealand dollar rose 0.02% to $0.63265, while the Australian dollar rose 0.11% to $0.69675 after rising more than 1% on Tuesday.
The Reserve Bank of Australia raised its cash rate by 25 basis points on Tuesday, as expected, but reiterated that further increases were required, indicating a more hawkish policy stance than many had anticipated. "The hawkish tilt caught most market participants off guard," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. She now anticipates two more 25-basis-point increases in March and April, bringing the cash rate to a high of 3.85%.