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

admin June 21, 2023

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

The dollar goes higher
Traders await Powell’s testimony

SINGAPORE, June 21 (Reuters) – The dollar was firmer on Wednesday ahead of Federal Reserve Chairman Jerome Powell’s appearance before Congress, where he is expected to strike a hawkish tone, while the pound strengthened slightly after warmer-than-expected British inflation data.

The annual pace of UK consumer price rises was flat at 8.7% in May, against hopes that it had cooled since April. Sterling briefly rose as much as 0.3% against the greenback to $1.2803 before settling back to $1.2765.

It also rose slightly on the euro and yen, as traders bet that the Bank of England would have to raise interest rates. Markets are now pricing in another 150 basis points hike for a 6% peak in a year.

The euro held steady at $1.0914 in Asian trade, while the yen fell slightly to 141.80 per dollar as Bank of Japan minutes and officials stuck to a dovish stance and as traders turned their focus to the Fed.

Powell is due to begin his testimony to Congress at 1400 GMT.

“Despite taking a break last week, Fed officials … still surprisingly aggressively forecast another 50 basis points of hikes by the end of 2023,” currency analysts at Maybank said.

“It is crucial to see whether (Powell) will more strongly lead the Fed to be serious about another 50 bps of hikes or give the impression that they are ‘data dependent,'” they said. “The former could do more to provide additional support to send the dollar index and yields higher.”

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

China set its yuan midpoint weaker than expected on Wednesday, with the currency falling to a fresh seven-month low of 7.1987 in onshore trade, while the offshore yuan weakened above 7.2 to the dollar.

The Aussie had taken a further beating thanks to Tuesday’s less hawkish than expected central bank minutes following this month’s rate hike. It fell 0.9% overnight and last bought $0.6786.

“The path of least resistance is further decline,” Commonwealth Bank of Australia strategist Joe Capurso said.

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

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

The US dollar index was marginally stronger at 102.60. Bitcoin extended overnight gains to surpass $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.