Dollar slips as investors await Powell testimony

The US dollar was broadly lower on Monday as investors awaited testimony from Federal Reserve Chair Jerome Powell and looked towards a February jobs report at the end of the week that will likely influence how hawkish the US central bank will be.

The dollar index , which measures the US currency against six major peers, was 0.182 per cent lower at 104.420. The index last week clocked a weekly loss for the first time since January.

After delivering jumbo hikes last year, the Fed has raised interest rates by 25 basis points in its latest two meetings, but a slew of resilient economic data has stoked market fears the central bank might return to its aggressive path.

Futures imply a 72 per cent chance the Fed will raise interest rates by 25 basis points at its meeting on March 22.

The spotlight will be firmly on the February jobs report scheduled for Friday and Fed Chair Jerome Powell’s testimony to congress on Tuesday and Wednesday.

“US underlying inflation remains stubbornly high well above the Fed’s inflation target of 2 per cent,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.

Recent data suggest consumer spending is not slowing much, while the labour market is unsustainably tight, Capurso said in a note, adding Powell would likely be hawkish in his testimony.

Citi strategists expect Powell to indicate a preference for a 25 bps hike but leave all options on the table, since he will speak before the jobs data are released.

Citi expects an increase in payrolls of 255,000 following January’s enormous 517,000 jump. A large surprise on the upside could lead to a 50 bps hike from the Fed, Citi said.

Meanwhile, the euro was up 0.07 per cent to $1.0641, having gained 0.8 per cent last week, while sterling was last trading at $1.2029, down 0.09 per cent on the day.

The Japanese yen strengthened 0.10 per cent to 135.74 per dollar, ahead of the final policy meeting on Friday for Bank of Japan Governor Haruhiko Kuroda.

If Kuroda ends his term with a very dovish tone, that could spell trouble for yen, especially if US yields continue their run higher this week, Saxo Markets strategists said.

Elsewhere, China’s yuan weakened on Monday, a day after the country set a modest target for 2023 economic growth of around 5 per cent. In the spot market, the onshore yuan opened at 6.9072 per dollar and was last changing hands at 6.9137.

In cryptocurrencies, bitcoin rose 0.53 per cent to $22,363.00., having fallen 5 per cent on Friday. Ethereum , last fell 0.02 per cent to $1,559.00.

The Australian dollar fell 0.21 per cent to $0.675, while the kiwi was last at $0.621, down 0.16 per cent.