The U.S. dollar held steady in early European trading on Wednesday, lingering near a three-week low following the first day of Federal Reserve Chair Jerome Powell’s two-day testimony on Capitol Hill. Meanwhile, the euro remained stable amid ongoing political uncertainty.
At 05:25 ET (09:25 GMT), the Dollar Index, which measures the greenback against a basket of six other currencies, edged slightly lower to 104.770, hovering just above Monday’s nearly one-month low of 104.622.
Dollar Awaits Powell’s Second Day of Testimony The dollar traded within a narrow range on Wednesday after Powell’s initial testimony before Congress. The Fed chair highlighted the recent cooling of the labor market as a significant factor in determining when the central bank might start cutting interest rates.
Powell also stated that a rate cut would not be appropriate until the Fed gains “greater confidence” that inflation is heading toward the 2% target. However, by acknowledging that elevated inflation is not the only risk the central bank faces, Powell seemed to be preparing the groundwork for a possible interest rate cut in September.
As Powell returns to Capitol Hill later on Wednesday, traders will be looking for further insights ahead of Thursday’s crucial consumer inflation data.
“Powell’s prepared remarks focused on two-way risks, reiterating the need for more data input to justify monetary easing,” analysts at ING noted. “So, more of the same rhetoric, and we believe Powell is content with keeping markets relatively quiet at this stage as some data starts to move in the right direction.”
French Political Gridlock EUR/USD rose 0.1% to 1.0819, staying below Monday’s near one-month high of 1.0845 after the second round of the French parliamentary elections. The election resulted in a surprising win for the country’s leftist alliance, following the far-right National Rally’s triumph in the first round, leading to the possibility of a hung parliament.
“It has become increasingly clear that coalition talks in France will be a lengthy and complicated process,” said ING. “Markets might prefer technocratic solutions over others, but it could take weeks to resolve the gridlock, and there is concern about the bond market becoming unsettled by such inactivity.”
GBP/USD traded 0.1% higher at 1.2801, close to Monday’s peak of 1.2845, its strongest level since June 12, following Thursday’s general election.
Yen Weakens After Japanese Inflation Data In Asia, USD/JPY traded 0.2% higher at 161.56, approaching recent 38-year highs. Japanese producer price index inflation data indicated that while factory inflation increased in June, it remained relatively weak, raising doubts about whether the Bank of Japan will have enough impetus to continue tightening policy.
USD/CNY traded 0.1% higher at 7.2760, with the yuan weakening after Chinese CPI inflation contracted in June, reflecting low consumer confidence. Although the country’s PPI inflation improved, shrinking at its slowest pace since February 2023, it still indicated that Chinese disinflation persists.
NZD/USD fell 0.8% to 0.6072 after the Reserve Bank of New Zealand kept rates steady and noted progress in bringing inflation back to its 1% to 3% annual range. The central bank also mentioned the possibility of loosening policy further if inflation continues to ease.
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