US dollar steadies ahead of Powell testimony and monthly jobs data

THE US dollar steadied on Monday (Mar 6), as investors awaited testimony from Federal Reserve chair Jerome Powell ahead of the February jobs report to be published at the end of the week.

The US dollar index, which measures the greenback’s performance against six other currencies, was last flat on the day at 104.63, after lifting off a session low of 104.34. Last week, the index clocked a weekly loss for the first time since January.

After delivering jumbo hikes last year, the Fed raised interest rates by 25 basis points (bps) at each of its last two meetings. But a slew of resilient economic data has fed a belief among investors that the central bank might have to switch back to half-point rises.

Futures imply a 76 per cent chance the Fed will raise interest rates by 25 bps at its meeting on Mar 22, with a 24 per cent chance of a half-point increase.

The spotlight will be on Powell’s testimony to Congress on Tuesday and Wednesday, and on the February jobs report due on Friday.

Jane Foley, currency strategist at Rabobank, said: “Of all this week’s events, it will be payrolls that will be the most important one.”

She added: “Are we going to have a continuation of the February outlook of higher-for-longer, or are the markets going to come back to: ‘January payrolls (data) is going to be a bit of an outlier, and maybe the economy is slowing’?”

In early February, the January monthly employment report showed blisteringly fast job growth and sustained wage inflation. This, together with strong reads of consumer spending and business activity later in the month, was enough to convince investors that the Fed would not have any reason to cut rates this year.

The US dollar has risen by around 2 per cent since then, largely at the expense of the Japanese yen, which lost over 5 per cent in value against the greenback in that time.

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The euro, which lost around 3 per cent against the US dollar from early February, was last flat on the day at US$1.0635, while sterling was down 0.4 per cent at US$1.20.

Weekly futures data on Friday showed that money managers were holding the largest bullish euro position in over two years, which drove the currency to nine-month highs in February. But that has left the currency looking vulnerable to a steep sell-off, especially if investors’ outlook for US rates does not shift and eurozone economic data does not show a material improvement.

“At this stage, people probably extended those positions assuming a recovery story, and what they’re getting instead is a technical recession followed by some resilience; and that’s not good enough,” Rabobank’s Foley said.

Powell’s remarks, meanwhile, will be under scrutiny too.

Deutsche Bank strategist Jim Reid said. “He may provide clues as to what employment and inflation numbers need to do to make the Fed act in a particular way, especially how it pertains to whether 50-bp hikes are back on the table.”

The yen was last down 0.24 per cent on the day at 136.15 per US dollar, ahead of the final policy meeting on Friday for Bank of Japan Governor Haruhiko Kuroda.

Elsewhere, China’s yuan fell against the greenback, after Beijing set a modest target for 2023 economic growth of around 5 per cent. The offshore yuan fell as much as 0.8 per cent to 6.949 per US dollar, while the Australian dollar, often traded as a liquid proxy for the yuan, fell 0.7 per cent to US$0.672. REUTERS