Dollar edges lower, but remains elevated after Powell's testimony

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By Peter Nurse

Investing.com - The U.S. dollar edged lower in early European trade Thursday, but remained elevated as Federal Reserve Chair Jerome Powell again pointed to further interest rate hikes to tackle inflation.

At 03:10 ET (08:10 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 105.543, remaining near its three-month peak of 105.880 hit in the previous session.

Powell returned to Capitol Hill on Wednesday for the second day of his semi-annual testimony, this time in front of the House Financial Services Committee.

He repeated his previous comments that the U.S. central bank will likely need to raise interest rates more than expected, and possibly in larger steps, as recent economic data had proved to be stronger than expected, pointing to persistent inflationary pressures.

He did make the concession that the debate of future rate hikes, including the expected increase in March, was still underway and would be data-dependent.

This brings Friday’s official jobs report firmly into focus, especially after last month’s blockbuster report, and U.S. jobless claims data later on Thursday will act as a precursor.

Powell’s comments have pushed the 2-year U.S. Treasury yield above 5.5%, at a 16-year high, while the 2-10-year curve has inverted close to 110 basis points and is prompting growing fears of a Fed-induced recession.

“We cannot really look for a broad dollar decline until that disinflation story returns and acute U.S. yield curve inversion breaks by the short end coming lower,” said analysts at ING, in a note.

Elsewhere, EUR/USD rose 0.1% to 1.0555 and GBP/USD rose 0.1% to 1.1848, both recovering from their multi-month lows after the dollar edged lower.

USD/JPY fell 0.4% to 136.87, retreating from a near three-month high, AUD/USD rose 0.4% to 0.6612, and USD/CNY rose 0.3% to 6.9734, close to the widely-watched 7-per-dollar level after weaker-than-expected inflation data showed a hesitant Chinese economic recovery.

USD/CAD fell 0.1% to 1.3794 the day after the Bank of Canada suspended its monetary tightening, keeping its key overnight interest rate on hold at 4.50%.