Dollar Weakens Ahead of Powell’s Reconfirmation Hearing
The US dollar is lower against its major trading partners early Tuesday, with the notable exception of the yen, as markets await testimony by Federal Reserve Chairman Jerome Powell at his reconfirmation hearing set to begin at 10:00 am.
After Friday’s mixed employment report and one day before the release of December consumer inflation data, markets will be looking for Powell to give clear signals that the first federal funds rate increase could be seen in March when asset price tapering is complete.
In his prepared testimony released Monday evening by the Fed, Powell said that the FOMC will “use our tools to support the economy and a strong labour market and to prevent higher inflation from becoming entrenched.”
There are several Fed officials speaking this week, as well testimony from Fed Governor Lael Brainard Thursday at her confirmation hearing to be Fed Vice-Chair, which could provide more colour, but Powell remains the main event.
Data on Tuesday are light again, with sentiment measures and the weekly Redbook retail sales measures the key readings. The week picks up on Wednesday with CPI reading and the Fed’s Beige Book, followed by producer inflation and Brainard’s testimony on Thursday and retail sales and industrial production data on Friday.
A quick summary of foreign exchange action heading into Tuesday shows that GBP-USD rose slightly to 1.359 from 1.3579 at the Monday US close but was roughly unchanged from the 1.3588 level a day earlier.
There are no key data releases from the UK on Tuesday, with UK gross domestic product (GDP) on Friday the highlight of the week. Political difficulties for Prime Minister Boris Johnson remain the news of the day.
The Bank of England meets next on Feb. 3 and is likely to consider further monetary policy tightening assuming that omicron cases have diminished.
EUR-USD rose to 1.1334 from 1.1328 at the Monday US close. The pair was also at 1.1328 a day ago. There are no Eurozone data scheduled for Tuesday, so markets will need to wait until Wednesday’s industrial production release.
European Central Bank President Christine Lagarde said earlier Tuesday that the ECB is committed to price stability and would act as needed to combat rising prices.
The ECB does not meet again until Feb. 3, with plenty of December data released before then to study the effects of the new variant. USD-JPY rose to 115.4564 from 115.1988 at the Monday US close and 115.2423 a day earlier.
Inflation expectations are rising in Japan according to a Bank of Japan survey released earlier Tuesday, adding to the belief that the BOJ’s language at its meeting next week will reflect a shift away from concerns about falling inflation.
USD-CAD slipped to 1.264 from 1.2677 at the Monday US close and was down slightly from 1.2643 a day earlier.
There are no Canadian data scheduled for release on Tuesday, but Friday’s December jobs reading increased the chances of rate increases by the Bank of Canada in the spring. Dollar Weakens Ahead of Powell’s Reconfirmation Hearing
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