Currencies stable ahead of Powell’s speech

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Key points:

  • The lack of catalysts keeps the dollar in a narrow range.
  • Traders are awaiting the ECB’s rate decision and US employment data.
  • Markets estimate the likelihood of a rate cut in June at about 60%.

On Wednesday, the foreign exchange market observed muted dynamics of the US dollar. Traders were holding off on big bets ahead of Fed Chairman Jerome Powell’s congressional testimony and ahead of the European Central Bank’s interest rate decision and U.S. employment data due later this week.

The lack of catalysts kept the dollar in a narrow range. A slight decline in the US currency was observed the day before against the backdrop of data indicating a slowdown in the growth of the US service industry in February.

What decisions do traders expect from officials?

The US jobs report for February released on Friday will be a key factor in determining the prospects for lower interest rates. Unexpectedly strong readings could roil markets as they signal a stronger-than-expected economy.

Traders are anxiously awaiting Fed Chairman Jerome Powell’s first day of testimony before Congress. He is expected to confirm the Fed’s intention to wait for more data before making decisions on rate cuts.

The Fed chief may also repeat his previous comments that strong core inflation in January did not have a material impact on the central bank’s outlook. Repeating this message is unlikely to change current market expectations for the start of the FOMC rate cut cycle in June. According to CME’s FedWatch tool, markets estimate the likelihood of such a decline to be about 60%.

Current currency dynamics before the Fed meeting

The US dollar index, which measures its exchange rate against a basket of six currencies, hovered around 103.76.

The euro was unchanged at $1.0855. Traders are awaiting the ECB’s interest rate decision, which will be announced on Thursday. The rate is expected to remain at a record low of 4%. At the same time, according to a survey of analysts, business activity in the eurozone showed signs of recovery in February.

Sterling held steady at $1.27050 ahead of the UK budget announcement on Wednesday.

The Australian dollar recovered from earlier losses. The GDP report showed the country’s economy grew just 0.2% in the fourth quarter, strengthening the case for rate cuts. The currency was last up 0.24% at $0.65195.

The New Zealand dollar added 0.16% to $0.60960, after hitting a three-week low of $0.6070 earlier in the session.

The US dollar lost 0.12% against the yen, ending at 149.86. It also fell overnight to 149.70. Despite being in a tight range, the Japanese currency remained below last week’s low against the US dollar (150.85).


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