The dollar took a dip across various markets on Wednesday. This downward trend followed comments made by Federal Reserve Chair Jerome Powell. He expressed that ongoing progress on inflation "is not assured." Despite these uncertainties, the U.S. central bank expects to cut its benchmark interest rate sometime this year.
Powell hints at policy shift; Euro surges
Jerome Powell suggested that if the economy progresses in line with expectations, there will be a fitting time within the year to start moderating policy restrictions. These sentiments were shared in a House Financial Services Committee statement.
The euro increased by 0.37% against the dollar, reaching $1.0897. This is its highest value since Feb. 2. Matt Weller, the lead market researcher at StoneX, said that Fed Chairman Powell reiterated the main points on the economic outlook that have been repeatedly emphasized in recent months.
However, traders felt let down by Powell's statements. They had started to believe that the Fed might avoid rate cuts in the early part of the year, according to Weller. "Since Powell did not support this idea, some proactive traders have withdrawn their optimistic bets on the dollar they made in the previous few weeks," he explained. Powell is set to meet with the Senate Banking Committee this Thursday.
The dollar weakens as economic data softens
The dollar index, a tool that gauges the dollar's strength compared to six other currencies, dropped by 0.41%, settling at 103.36. In mid-February, this index had risen to 104.97—about 3.6% for the year--thanks to strong U.S. economic data. However, it has since slipped as recent reports have indicated some economic weakness.
Data revealed on Wednesday indicates a minor shortfall in the rise of U.S. private payrolls in February. Concurrently, wage growth for employees who held onto their jobs slowed to the lowest rate in 2.5 years. These signs point towards a softening labor market. The Labor Department will present a more detailed and scrutinized February employment report this Friday.
According to Bill Adams, the chief economist for Comerica Bank, the ongoing availability of job openings and ADP private payroll data pave the way for Federal Reserve rate cuts later this year. This observation was based on the report provided by Automatic Data Processing.
On Tuesday, the dollar fell. It was due to slowing growth in the U.S. services industry. Traders await Thursday's European Central Bank's (ECB) rate decision. The ECB will likely keep its primary interest rate at a record 4%. The big question now is when they will start to cut rates.
Danske Bank's Mellin provided an insight, stating that they believe the message will be reiterated and the outlook will unlikely change tomorrow.
Pound rises, Bitcoin surges, Dollar declines
The British pound increased slightly by 0.25% to $1.2738. This increase happened as traders studied the U.K.'s latest financial plans. Some speculate these could be the final plans before a predicted election later this year. The British Finance Minister, Jeremy Hunt, didn't bring any surprises. He announced a two-percent cut on National Insurance Contributions (NICs) and paused any increases on fuel and alcohol tax.
Bitcoin's value grew by 5.76%, reaching $66,963. This increase came after a significant drop on Tuesday, bouncing back with a bang when it reached a new peak. The surge in Bitcoin's price can be attributed to two main factors. First, investors have been channeling more funds into exchange-traded crypto products based in the U.S. Secondly, there's a growing expectation that worldwide interest rates may tumble.
The dollar has dropped by 0.45% compared to the yen, reaching 149.38 yen. This is due to reports that certain members of the Bank of Japan's board are considering raising rates from their current negative level at the March meeting. However, most analysts anticipate that if Japan's spring wage negotiations lead to substantial pay increases, the Bank of Japan will likely move out of negative rates in their April meeting.
The U.S. dollar took a 0.57% dip compared to the Canadian dollar following the Bank of Canada's decision to maintain its critical overnight rate at 5%. The Bank said it's too soon to consider a reduction because inflation is still a concern.
The Australian dollar rose by 0.94% to $0.6565 despite uninspiring growth of only 0.2% in the fourth quarter. This economic situation strengthens the argument for rate cuts.