The U.S. dollar edged down against a basket of currencies on Wednesday after Federal Reserve Chair Jerome Powell's comments on the central bank's ongoing fight to lower inflation failed to live up to the more hawkish market expectations.
Chair Powell on Wednesday told lawmakers that the fight against inflation still "has a long way to go" and despite a recent pause in rate hikes officials were in agreement borrowing costs would likely still need to move higher.
While noting that inflation remains very far from the Fed's target, Powell said it may make sense to move rates higher, at more moderate pace.
"Looks as if Powell failed to out-hawk markets that were braced for a more explicit ratification of the median projection in the latest dot plot summary of economic projections," said Karl Schamotta, chief market strategist at business payments company Corpay.
The Fed had left interest rates unchanged at its June meeting but signalled in new projections that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year.
"By sticking to the balanced, data-dependent language deployed in last weeks press conference, he left investors betting that the ongoing deceleration in growth and inflation will translate into one – not two – rate hikes by year end," Schamotta said.
The dollar index, which measures the currency against six rivals, was 0.20% lower on the day at 102.31 as Powell testified to House Financial Affairs Committee.
The hearing, the first of two Capitol Hill appearances this week as part of his twice-yearly reports to federal lawmakers.
"Consumer Price Index and Non-Farm Payrolls in July are going to be huge events, though it does feel that unless there's some kind of disastrous jobs print they're going to hike in July come what may," TraderX market strategist Michael Brown said.
Investors broadly expect rate increases to resume at the Fed's July meeting, though financial market indicators reflect doubts that the Fed will deliver more increases beyond that meeting.
YEN UNDER PRESSURE, STERLING SEESAWS
The euro was 0.35% higher against the dollar at $1.0956. Against the yen, the dollar was up 0.4% at 142.015 yen, with the Japanese currency under pressure after Bank of Japan Governor Kazuo Ueda on Wednesday reiterated the central bank's dovish stance to maintain its ultra-loose monetary policy.
The British pound seesawed on Wednesday, initially jumping after data showed UK inflation accelerated more than expected in May, then reversing gains as concerns flared over the Bank of England's ability to protect the economy from stagnating.
The annual pace of British consumer price gains was steady at 8.7% in May, against hopes it had cooled since April, with the UK's inflation rate remaining more persistent compared with other major economies.
Adam Cole, chief currency strategist at RBC Capital Markets, said sterling's weakness may be down to fears that "inflation is high enough and consistent enough for it to become negative for the currency".
The pound was last down 0.17% at $1.2741, a near 1-week low.
The Australian dollar was down 0.07% at $0.6782, on pace for a 4th straight day of losses, weighed down by the release on Tuesday of the minutes of the Reserve Bank of Australia's June policy meeting, where guidance on yet further increases was absent, a sign that markets took as dovish.
The Aussie, which is very sensitive to Chinese economic data, has also come under pressure due to lacklustre stimulus measures from Beijing.
Bitcoin extended overnight gains to breach $29,000 for the first time since late May, helped by the launch of a new crypto exchange backed by Fidelity, Citadel Securities and Charles Schwab. It was last up 5.55% at $29,887.
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