Greenback catches breath ahead of Fed testimony

London

THE US dollar paused for breath on Tuesday as traders looked to testimony from Federal Reserve chair Jerome Powell for further guidance on the recent surprise shift in the central bank's policy outlook, while support crept back for cryptocurrencies.

The greenback had gained sharply since the Fed last week flagged sooner-than-expected interest rate increases, although it dipped on June 21 to hand back a little bit of that rise.

Against the euro, the dollar nursed an overnight loss of about 0.4 per cent to steady at around US$1.1890. It crept higher to 110.42 yen, while the dollar index was 0.1 per cent higher at 92.078 after a loss of about 0.5 per cent on June 21.

The Australian and New Zealand dollars eased after June 21's bounce from multi-month lows, with the Aussie down 0.5 per cent to US$0.7504 and the kiwi down 0.2 per cent to US$0.6975.

In the medium term, investors will be keenly focused on the US labour market as its performance is likely to influence the Fed's attitude. In the nearer future, all eyes are on Mr Powell, who appears before Congress from 1800 GMT.

In prepared remarks, he noted sustained labour market improvement and the recent increase in inflation.

"We suspect that, unlike the hawkish Mr Bullard, Mr Powell could advocate a start of the tightening cycle in 2023 and thus help calm the market's nerves in the very near term," said Valentin Marinov, head of G10 FX research at Credit Agricole.

On June 21, hawkish Fed officials such as St Louis Fed president James Bullard and Dallas Fed president Robert Kaplan remarked on the risks of acting too slowly.

However, New York Fed president John Williams said it was too soon to shift policy, and that he expects inflation to ease from about 3 per cent this year to close to 2 per cent in 2022 and 2023 - leaving markets none the wiser.

Fed member Loretta Mester is also due to make a speech on Tuesday.

Elsewhere, sterling fell 0.4 per cent to US$1.3873, holding on to its overnight bounce as investors look forward to the British economy reopening further on July 19.

Bitcoin and other cryptocurrencies found something of a footing after slumping on June 21, when a tightening crackdown on trading and mining in China, as well as technical factors, whacked the asset class.

On Tuesday, they held just above May lows, with Bitcoin at US$31,337 and Ether at US$1,861. REUTERS