Dollar firm ahead of Powell testimony, sterling up on hot inflation

Singapore, June 21 (BNA): The dollar rose on Wednesday leading Federal Reserve Chairman Jerome Powell to appear before Congress where he was expected to take a hawkish tone, while the pound strengthened slightly after hotter-than-expected British inflation data.

The annual pace of UK consumer price gains held steady at 8.7% in May, against hopes that it has eased since April. The pound rose briefly as much as 0.3% against the dollar to $1.2803 before settling back to $1.2765, Reuters reported.

It also rose slightly against the euro and the yen, as traders were betting that the Bank of England would need to raise interest rates. Markets are now pricing in another 150 basis points hiking to peak at 6% in a year’s time.

The euro settled at $1.0914 in Asian trade, while the yen fell slightly to 141.80 against the dollar as BoJ meeting minutes and officials stuck to a dovish stance and traders shifted their focus to the Federal Reserve.

Powell is scheduled to begin his congressional testimony at 1400 GMT.

“Despite their pause last week, Fed officials… still aggressively expect another 50 basis points in gains by the end of 2023,” said currency analysts at Maybank.

“It will be crucial to see whether he (Powell) returns more forcefully to the point that the Fed is serious about another 50 basis point hike or gives the impression that they are data-driven,” they said. “The former may do more to provide additional support to send the dollar index and yields higher.”

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Elsewhere, there was little appetite for a bounce from the yuan or the Australian dollar, which have been hurt by China’s fragile economic recovery and lack of major stimulus.

China set a weaker-than-expected yuan midpoint on Wednesday and the currency fell to a fresh seven-month low of 7.1987 in onshore trade, while the offshore yuan weakened, crossing 7.2 against the dollar.

The Australian dollar took a further hit thanks to the central bank’s less hawkish meeting minutes than expected on Tuesday after this month’s interest rate hike. It fell 0.9 percent overnight and last bought $0.6786.

“The path of least resistance is further declines,” said Joe Capurso, a strategist at the Commonwealth Bank of Australia.

“The Australian dollar could drop below 0.6700 this week, especially if Powell is hawkish,” he said.

The New Zealand dollar was pulled lower in sympathy, breaking below its 50-day moving average before settling above its 200-day moving average at $0.6178.

The US Dollar Index was marginally stronger at 102.60. Bitcoin extended gains overnight to breach $29,000 for the first time since late May, helped by the launch of a new crypto exchange backed by Fidelity, Citadel Securities, and Charles Schwab.


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