Dollar Trades Cautiously before Powell’s Speech

Dollar Trades Cautiously before Powell’s Speech

The dollar is trading carefully in the forex market, as the broader financial market awaits Federal Reserve Chairman Jerome Powell’s speech later in the day.

On the one hand, the dollar is performing well against the British pound and the emerging markets. On the other, though, the buck is flat against most of its peers.

The testimony starts at 10AM, US time, amid a heightened uncertainty over what comes next for the interest rates.

“There is a risk that the Fed will not be as dovish as people thought. Central banks ahead of the curve in this cycle are Australia and New Zealand. The Fed is following, but the European Central Bank and the Bank of England are laggards,” said a chief currency strategist at Mizuho Securities Tokyo.

Previously, markets have been expecting aggressive rate cuts from the US central bank. But in a matter of weeks, the expectations faded.

That’s because of the stronger-than-expected US labor market report last week. More jobs were created that expected, so the markets are now easing back on their expectations.

But a 25 basis point cut is still expected in the Fed funds rate in the meeting this month of the Federal Open Markets Committee.

Pass the Peak

The dollar has already strengthened due to the boost in jobs report, but analysts bet that the greenback is already pass its peak.

Overall, the next move for the buck is more likely south than north. Additionally, analysts have also been pointing out that, in the EURUSD pair, the cost of buying protection against a euro decline has decreased in recent weeks. The cost of buying protection against a euro appreciation, meanwhile, has increased.

The ECB will potentially ease on rates, and this compels other analysts to think that it’s too early for a EURUSD upward push. There are also threats to the Eurozone economy coming from the potential US import tariffs, Brexit, and Italy’s budget problems.

European Focus

In Europe, the pound gathers most of the focus. It reached a two-year low against the buck in the early trading session. That comes before a monthly report on economic growth for May.

For May, markets expect a slight expansion. However, it’s more and more possible that the UK will clock in its first quarterly contraction since 2012 for the second-quarter economic report.

Against the euro, the pound slipped to a six-month low. That happened even if markets are seeing signs that the ECB will announce a monetary easing policy during its next meeting in July.

The pound traded at $1.2458, higher than the intra-day low of $1.2444. It was at the same time at 1.1106 euros after dipping lower than 1.1100 for the first time since December.

Other Figures

Meanwhile, the greenback barely moved against a basket of other major currencies,  trading at 96.977, as per the US dollar index.

The USDJPY pair, meanwhile, was also nearly flat at 108.72. Japan is dealing with some simmering tensions with South Korea, after Japan’s Industry Minister Hiroshige Seko said that Japan wasn’t “thinking at all” of withdrawing restrictions on Japanese high-tech exports to SoKor.

The USDCNY pair last traded with a 0.02% boost. On the day, focus shifted to the upcoming June CPI and PPI data by the National Bureau of Statistics. Over the weekend, traders expect the release of the Q2 GDP.