Dollar pulls back as Powell sticks to usual Fed playbook

SINGAPORE – The dollar eased on Wednesday after Federal Reserve Chair Jerome Powell failed to offer fresh signs of a hawkish pushback against a resilient labor market in the United States, leading investors to bet that interest rates may not rise much further.

In a question-and-answer session before the Economic Club of Washington on Tuesday, Powell acknowledged that interest rates might need to move higher than expected if economic conditions remained strong but reiterated that he felt a process of disinflation was underway.

The U.S. dollar struggled to recover its losses in Asia trade on Wednesday, after slipping in the previous session as Powell spoke.

Sterling rose 0.06% to $1.2057, rebounding from Tuesday’s one-month trough of $1.19615.

Similarly, the euro was last 0.04% higher at $1.0732, after falling to $1.06695 in the previous session, its lowest since Jan. 9.

Powell “didn’t necessarily say something that was tangibly new …. I think we’re becoming quite accustomed to the idea that the Fed now is certainly data dependent,” said Chris Weston, head of research at Pepperstone.

“The markets and the central bank are all in a position now where they’re just watching the data, so for now we’re less sensitive to Fed officials and far more sensitive to data.”

Against a basket of currencies, the U.S. dollar index steadied at 103.31, after slipping 0.3% in the previous session.

The greenback had a short-lived rally following Friday’s blockbuster jobs report, which showed that nonfarm payrolls had surged by 517,000 jobs last month.

That sent the U.S. dollar index to a one-month high of 103.96 on Tuesday, as investors raised their expectations of how much further the Fed would need to keep raising interest rates. Futures pricing shows that markets are expecting the Fed funds rate to peak just above 5.1% by June.

Elsewhere, the Japanese yen rose 0.16% to 130.88 per dollar, after surging 1.2% in the previous session.

Japan’s government is considering presenting to parliament its nominees for the next Bank of Japan governor and two deputy governors sometime next week, sources told Reuters.

The kiwi edged 0.02% higher to $0.63265, while the Aussie advanced 0.11% to $0.69675, after surging more than 1% on Tuesday.

The Reserve Bank of Australia on Tuesday raised its cash rate by 25 basis points, as expected, but reiterated that further increases would be needed, indicating a more hawkish policy tilt than many had expected.

“Most market participants were kind of caught off guard by the hawkish tilt,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia. She now expects two more 25 basis point rises in March and April, taking the cash rate to a peak of 3.85%.