Dollar drops ahead of Powell’s Congressional appearance

In his opening remarks for the hearing released in advance, Powell pledged to prevent high inflation from becoming ‘entrenched’

The U.S. dollar slipped lower in early European trade Tuesday, but remained in a tight trading range as traders look to Federal Reserve Chair Jerome Powell’s appearance in Congress later session for clues over when the central bank will start raising interest rates.

In his opening remarks for the hearing released in advance, Powell pledged to prevent high inflation from becoming ‘entrenched,’ but did not provide clues about the central bank’s timeline and speed of monetary tightening.

Powell's answers to questions from senators during his confirmation hearing for a second four-year term as the head of the U.S. central bank could be more illuminating.

At 0755 GMT, the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower at 95.843.

The index hit its highest in more than 16 months at 96.938 on Nov. 24 when released minutes of a Fed meeting pointed to policymakers turning hawkish, but has since been stuck between that level and 95.544, touched less than a week later.

USD/JPY egged higher to 115.22, after bouncing off a one-week low of 115.04 on Monday, EUR/USD rose 0.2% to 1.1344, while the risk-sensitive AUD/USD climbed 0.3% to 0.7188.

The Fed turned hawkish in December, indicating that inflation was more of an issue than previously suggested and flagged plans to tighten policy faster than expected in response.

But that was before the Omicron variant started its rapid spread, and this week's hearings the first opportunity for Powell to indicate if this outbreak has changed his thinking.

Money markets are priced for an increase by May, with two more by November, with influential investment bank Goldman Sachs earlier this week announcing it now expects another hike in December, making it four in 2022.

Powell's comments come ahead of Wednesday’s U.S. December consumer inflation release, with headline CPI seen breaking above 7% on a year-on-year basis.