The U.S. dollar was steady in early European trading on Wednesday, remaining near a three-week low, after the first day of Federal Reserve Chairman Jerome Powell’s two-day testimony on Capitol Hill, while the euro held steady amid political uncertainty.
At 05:25 ET (09:25 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down slightly at 104.770, just above a one-month low of 104.622 hit on Monday.
Dollar Waits for Powell Part 2
The dollar traded in a tight range on Wednesday following Powell’s initial testimony to Congress, where the Federal Reserve chairman pointed to the recent labor market slowdown as an increasingly important factor in determining when the U.S. central bank will start cutting interest rates.
Powell also said that cutting interest rates is not appropriate until the Fed gains “greater confidence” that inflation is moving toward its 2% target.
But by signaling that rising inflation is not the only risk facing the central bank, the Fed chairman could be seen as preparing to cut interest rates in September.
Brown returns to Washington later on Wednesday, and traders will be looking for further clarity on his comments ahead of crucial consumer inflation data on Thursday.
“Powell’s prepared remarks focused on risks in both directions, emphasizing the need for more data to justify monetary easing. So, more of the same, and we think Powell is happy to keep markets relatively calm at this point as some data is starting to go in the right direction,” analysts at ING Bank said in a note.
Political stagnation in France
The pound rose 0.1% against the US dollar to 1.0819, remaining below its highest level in almost a month at 1.0845 hit on Monday in the wake of the second round of French parliamentary elections.
The elections resulted in a shock victory for the country’s left-wing coalition, after the far-right National Rally party won in the first round, meaning the country now faces the prospect of a hung parliament.
“It is becoming increasingly clear that coalition talks in France will be a long and complicated process,” ING said. “Markets are likely to choose technocratic solutions over others, but it could take weeks to break the deadlock and we remain concerned about the jitters in bond markets caused by this deadlock.”
Sterling rose 0.1% against the US dollar to 1.2801, not far from Monday’s 1.2845 level, its strongest since June 12, in the wake of Thursday’s general election.
Yen falls after Japanese inflation
In Asia, the dollar rose 0.2% to 161.56, returning to its highest level in 38 years.
Japan’s producer price index inflation data showed that while factory inflation rose in June, it remained relatively weak, raising doubts about whether the Bank of Japan will have enough momentum to continue tightening policy.
Sterling rose 0.1% to 7.2760, with the yuan weakening after inflation contracted in June, reflecting a lack of confidence in spending among consumers.
The country’s inflation rate improved, contracting at its slowest pace since February 2023, but it still showed that Chinese deflation is still in place.
Sterling fell 0.8% to 0.6072 after the central bank kept interest rates steady and signalled progress in returning inflation to its annual range of 1% to 3%. The central bank also said it could ease policy if inflation is further eased.