Dollar rises ahead of Powell’s testimonywritten by Bella Palmer
The Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher at 104.650
The U.S. dollar pushed higher in early European trade Wednesday with Fed Chair Jerome Powell expected to talk tough on inflation during his testimony to Congress, while sterling fell in wake of more elevated inflation data.
At 0705 GMT, the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher at 104.650.
Wednesday's main event is the start of U.S. Federal Reserve Chair Jerome Powell's two-day testimony to Congress, with investors looking for further clues about whether another 75 basis point rate hike is on the cards at the Fed's July meeting.
The next big dollar input will be when Fed Chair Jerome Powell delivers his semi-annual monetary policy testimony to the Senate - which judging from the latest FOMC meeting should be pretty hawkish and means that any dollar downside is likely to be limited, said analysts at ING, in a note.
The Fed is poised to deliver another large rate hike at its next meeting in July, and Richmond Fed President Thomas Barkin said on Tuesday that Powell’s guidance that the U.S. central bank will most likely raise interest rates by 50 or 75 basis points in July is ‘reasonable.’
Also helping the dollar was the news that President Biden was looking at a temporary tax holiday on gasoline, with the U.S. government set to use its fiscal leeway to ease some of the consumer pain felt by high energy prices.
Looser fiscal policy could provide more room for central bankers to ride out the inflation storm with higher rates and a loose fiscal, tight monetary policy mix is generally good news for a currency, said ING.
EUR/USD fell 0.5% to 1.0473, the risk-sensitive AUD/USD dropped 1.1% to 0.6895, while USD/JPY fell 0.2% to 136.31, having hit 136.71 in early trade, its highest since October 1998, with the yen weighed by the ever-widening gap between yields on Japanese government bonds and U.S. Treasuries.
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