Dollar drops as traders await Powell speech, ECB policy

Market expectations indicate that both the Fed and the European Central Bank will implement rate cuts starting in June, with approximately 90 basis points of easing priced in

On Wednesday, the U.S. dollar experienced a slight decline as traders awaited important events such as Federal Reserve Chair Jerome Powell's congressional testimony and the European Central Bank's policy announcement.

Meanwhile, bitcoin showed signs of gaining momentum again, although it remained below the previous day's record high.

The lack of significant catalysts continued to put pressure on the dollar, which had slipped the day before due to slower growth in the U.S. services industry.

Traders were now eagerly anticipating Powell's testimony, where he is likely to emphasize the Fed's cautious approach to rate cuts, waiting for more data before taking any action.

I think he will speak to previous comments that they are data dependent and that they might reduce rates at an upcoming meeting without specifying a particular one, according to Stefan Mellin, chief analyst, FX Strategy, at Danske Bank.

We think there will be a synchronised easing cycle that means the rate gap between Europe and the U.S. is going to be maintained. That is positive for the dollar in our view, Mellin said.

Market expectations indicate that both the Fed and the European Central Bank will implement rate cuts starting in June, with approximately 90 basis points of easing priced in.

Against the dollar, the euro saw a slight increase of 0.1% at $1.0873, as traders also prepared for the ECB's interest rate decision later in the week.

The focus will be on any indications about the timing of potential rate cuts, as the central bank is expected to maintain rates at the current record level of 4%.

We think they are going to echo their message again and tomorrow is not going to change the outlook, Mellin added. The European Central Bank is on the path to ease in June.