Dollar falls slightly as Powell indicates easing of hawkishness

8 Feb 2023 , 12:52 PM

The dollar fell on Wednesday as investors wagered that interest rates may not climb significantly more after Federal Reserve Chair Jerome Powell failed to provide any new indications of a hawkish pushback against the country’s robust labour market.

Powell recognized that if economic conditions continued to be favourable, interest rates might need to increase more than anticipated, but he reaffirmed his belief that a process of disinflation was already underway during a question-and-answer session before the Economic Club of Washington on Tuesday.

In Asia trade on Wednesday, the U.S. dollar failed to recoup its losses from the previous session as Powell spoke.

Sterling recovered from Tuesday’s one-month low of $1.19615 by rising 0.06% to $1.2057.

Similarly, the euro was last up 0.04% at $1.0732 after dropping to its lowest level since January 9 the previous session at $1.06695.

The U.S. dollar index held steady at 103.31 against a basket of currencies after falling by 0.3% the previous day.

Following Friday’s ground-breaking jobs data, which revealed that nonfarm payrolls had increased by 517,000 jobs last month, the dollar had a brief rise.

Due to this, investors increased their forecasts of how far the Fed would need to hike interest rates before they drove the U.S. dollar index to a one-month high of 103.96 on Tuesday. Markets anticipate the Fed funds rate will peak at a little over 5.1% by June, according to futures pricing.

In other news, the Japanese yen increased 0.16% to 130.88 per dollar after gaining 1.2% the day before.

As anticipated, the Reserve Bank of Australia increased its cash rate by 25 basis points on Tuesday, but it also reaffirmed the need for further hikes, signalling a more hawkish policy lean than many had anticipated.