What Happened to the US Dollar? Powell's speech determines the direction of the market


The US Dollar was relatively weak on Wednesday, while traders focused cautiously ahead of the first session of testimony to Congress by the Chairman of the Federal Reserve, Jerome Powell, and the European Central Bank's policy announcement on Thursday.

Meanwhile, bitcoin is regaining momentum, although still below the record highs reached the previous day.

The lack of a key driving catalyst left the US dollar on the defensive, after easing slightly on Tuesday after data showed growth in the US services industry slowed last month.

Traders are now awaiting Fed Chairman Powell's first day of testimony before Congress on the state of the US economy, where he is expected to emphasize that the Fed will wait for more data before making any rate cuts.

“We think there will be a coordinated easing cycle which means the rate gap between Europe and the US will be maintained. This is positive for the dollar in our view," added Mellin, said Stefan Mellin, chief analyst, FX Strategy, at Danske Bank

Markets are predicting about 90 basis points of reductions from both the Fed and the European Central Bank this year, with both expected to begin rate cuts in June. Against the US dollar, the euro strengthened about 0.2% to $1.0873 as traders also braced for the ECB's interest rate decision on Thursday.

The central bank is expected to leave interest rates at a record 4%, focusing on indications of when tapering might begin.

"We think they will repeat their same message," said Danske Bank's Mellin. "The ECB is now on track to ease its monetary policy in June."

The yen strengthened on slight reports that some Bank of Japan board members thought it would be appropriate to raise rates from negative levels at the March meeting. The US Dollar was last down 0.2% at 149.75 yen. Most analysts expect the BoJ to exit negative rates at its April meeting if spring wage talks in Japan produce strong wage increases.

Sterling strengthened to $1.2723 ahead of Britain's budget announcement on Wednesday, with reports on Tuesday pointing to a possible cut in national insurance even as markets remain gripped by unfunded tax cuts from the September 2022 budget.

The US dollar index, which measures the currency against a basket of six other currencies, fell about 0.22% to 103.525.