FOREX-US dollar slips as Fed’s Powell says he still expects rate cuts this year

By Saqib Iqbal Ahmed

NEW YORK, March 6 (Reuters) – The U.S. dollar slipped to a one-month low against the euro on Wednesday after U.S. Federal Reserve Chair Jerome Powell said continued progress on inflation “is not assured,” though the central bank still expects to reduce its benchmark interest rate later this year.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said in remarks prepared for delivery to the House Financial Services Committee.

“Fed Chairman Powell’s opening statement to Congress essentially repeated the same main points that he and his colleagues have been hitting for months,” Matt Weller, head of market research at StoneX, said.

But Powell’s words disappointed traders, who in recent weeks had begun to speculate that the Fed would back away from any potential for interest rate cuts in the first half of the year, Weller said.

“With Fed Chairman Powell refusing to endorse that possibility, some forward-thinking traders have reversed bullish bets on the greenback from the past couple weeks,” he said.

The House hearing on Wednesday will be followed by one before the Senate Banking Committee on Thursday.

Data on Wednesday showed U.S. private payrolls rose slightly less than expected in February, while wages for workers remaining in their jobs increased at the slowest pace in 2-1/2 years, consistent with a cooling labor market. The report comes ahead of the release on Friday of the Labor Department’s more comprehensive and closely watched employment report for February.

The dollar slipped on Tuesday after data showed U.S. services industry growth slowed last month.

Traders also braced for the ECB’s interest rate decision on Thursday with the central bank expected to leave rates at a record 4%, putting the focus on clues about when cuts may begin.

“We think they are going to echo their message again and tomorrow is not going to change the outlook,” Danske Bank’s Mellin said.

“The ECB is on the path to ease in June.”

Elsewhere, Sterling GBP=D3 edged up 0.13% to $1.2723 as traders digested Britain’s latest fiscal plans, possibly the last budget before an election expected later in the year.

British finance Minister Jeremy Hunt offered no surprises in his latest statement, announcing a two percentage point cut to National Insurance Contributions (NICs), while freezing fuel and alcohol duty.

Meanwhile, bitcoinBTC= was up 4.1% at $65,911, rebounding from Tuesday’s sharp swoon after it hit a new high. The cryptocurrency’s recent price rise has been fuelled by investors pouring money into U.S. spot exchange-traded crypto products and the prospect that global interest rates may fall.

Analysts are mostly expecting the BoJ to exit negative rates at the April meeting if Japan’s spring wage negotiations result in solid pay hikes.

The U.S. dollar was 0.42% weaker against its Canadian counterpart after the Bank of Canada kept its key overnight rate steady at 5% on Wednesday as expected and said it was still too early to consider a cut, given the persistence of underlying inflation.

The Australian dollar AUD=D3 brushed off gross domestic product data that showed the economy grew a mere 0.2% in the fourth quarter, reinforcing the case for rate cuts. The currency was last up 0.7% at $0.65495.

World FX rates https://tmsnrt.rs/2RBWI5E

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Samuel Indyk and Brigid Riley; Editing by Shri Navaratnam, Lincoln Feast, Sharon Singleton, Emelia Sithole-Matarise and Deepa Babington)

((saqib.ahmed@thomsonreuters.com; @SaqibReports; +1 332 219 1971; Reuters Messaging: saqib.ahmed.thomsonreuters.com@reuters.net))

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