TOKYO- The dollar was on the front foot on Wednesday, but hovered near a three-week low, as the cautious tone from Federal Reserve Chair Jerome Powell kept risk sentiment in check, while the New Zealand dollar weakened at the prospect of a rate cut there.
In the first day of his testimony to Congress overnight, Powell said a rate cut is not appropriate until the Fed gains “greater confidence” that inflation is headed toward the 2 percent target, setting the stage for Thursday’s CPI report for June.
Powell, however, noted the cooling job market. “We now face two-sided risks” and can no longer focus solely on inflation, he said.
The dollar index which measures the US currency against six major peers including the euro and yen, was little changed at 105.09, after rising about 0.1 percent on Tuesday. It had dipped on Monday to the lowest since June 13 following unexpectedly soft US payrolls data.
Traders now have around 73 percent odds for a rate cut by September, slipping from 76 percent a day earlier, CME FedWatch tool showed, with a second reduction mostly priced in by December.
“Powell was careful not to pre-commit to a path they could still readily be knocked away from by the data flow,” said Taylor Nugent, senior markets economist at National Australia Bank.
“Even as markets look to September as the likely kick-off date, it is difficult for pricing to firm much further with three CPI prints and two payrolls to get through, which could readily delay things.”
Following his testimony to the Senate, Powell is scheduled to speak before the House later in the day.
Meanwhile, the kiwi was 0.51 percent lower at $0.60940, pulling further away from Monday’s three-week high of $0.6171 after the Reserve Bank of New Zealand opened the door to possible rate cuts should inflation slow as expected.
