Dollar barely changed after Powell's latest rate hike

NEW YORK: The dollar was barely changed as investors stopped selling the dollar a day after Federal Reserve Chair Jerome Powell did not change his interest rate outlook despite a strong US jobs report last week.

The outlook of the dollar fell to the downside as the Fed nears the end of its tightening cycle and the markets price in rate cuts by the end of the year, analysts said.

Powell told the Economic Club of Washington on Tuesday that interest rates might need to move higher than expected if the US economy is strong, but he felt a process of disinflation is underway.

The dollar weakened because Powell was not hawkish. Thierry Wizman, global FX and rates strategist at Macquarie in New York, said there were a number of nuggets in his speech that suggested that the jobs report has not materially changed the outlook of the Fed.

Powell did not answer any questions on whether or not he would have raised rates despite the data dependency of the outlook last week, despite the fact that he would have not raised more despite the fact that he would have not raised more and the outlook itself has not changed on one data point. The Fed rhetoric of pushing US rates higher has been reiterated by John Williams, New York Fed President. He told a Wall Street Journal event that moving to a federal funds rate of between 5.00 per cent and 5.25 per cent is a reasonable view of what we need to do this year in order to get supply and demand imbalances down. The euro was trading at US $1.0724 in the afternoon after falling to US $1.067 the previous session, its lowest since Jan 9. It remained well above September's 20 year low of US $0.953.

The German central bank chief Joachim Nagel told the newspaper Boersen-Zeitung on Tuesday that investors received hawkish comments from two German officials at the European Central Bank ECB From where I stand today we need further rate hikes.

His colleague Isabel Schnabel said that it is not yet clear that the ECB rate hikes would bring inflation back to 2 per cent.

The US dollar index was up 103.38 against a basket of currencies, after slipping the previous session.

The pound rose by 0.2 per cent to US $1.207 after Tuesday's one-month trough of US $1.196.

The greenback had a short-lived rally after Friday's blockbuster jobs report showed that non-farm payrolls had surged by 517,000 jobs last month.

The US dollar index was one-month high of 103.96 on Tuesday as investors raised their expectations of how much more the Fed would need to raise interest rates.

The Fed funds rate is expected to reach 5.1 per cent by July, from a range of 4.5 per cent to 4.75 per cent currently, according to futures pricing on Wednesday. The fed funds rate is expected to be 4.8 per cent at the end of the year, and the market has priced in Fed cuts as well as the implied funds rate at 4.8 per cent by the end of the year.

Joe Perry, senior market analyst at the FOREX.com and City Index, said the market is pricing in a higher terminal rate and the market is pricing in higher cuts of 25 or 50 basis points at the end of the year. According to pricing in derivatives markets, traders expect the ECB to hike rates to around 3.5 per cent in late summer, from 2.5 per cent now.

The dollar rose by 0.2 per cent against the yen to 131.355 yen.

Japanese real wages went up for the first time in nine months thanks to robust temporary bonuses, according to data released on Tuesday.

The New Zealand dollar dropped 0.2 per cent to US $0.6308. The Aussie dollar slipped by 0.5 per cent to US $0.6925 after surging more than 1 per cent on Tuesday.

The Reserve Bank of Australia has raised its cash rate by 25 basis points.