By Samuel Indyk and Brigid Riley
LONDON (Portal) – The U.S. dollar was slightly weaker on Wednesday as traders kept their powder dry ahead of U.S. Federal Reserve Chairman Jerome Powell's first testimony before Congress and the European Central Bank's policy announcement on Thursday.
Meanwhile, Bitcoin picked up speed again, but remained below the previous day's record high.
The lack of key catalysts kept the dollar on the back foot after slipping on Tuesday after data showed U.S. services industry growth slowed last month.
Traders now awaited Fed Chairman Powell's first day of testimony before Congress on the state of the U.S. economy, where he is expected to underscore that the Fed will wait for more data before cutting interest rates.
“I think he will address previous comments and point out that they are data dependent and that they may cut rates at an upcoming meeting without mentioning a specific point,” said Stefan Mellin, chief analyst for FX strategy at Danske Bank.
“We believe there will be a synchronized easing cycle, meaning the interest rate differential between Europe and the US will remain. This is positive for the dollar in our view,” Mellin added.
Markets are pricing in about 90 basis points of easing from the Fed and European Central Bank this year, with both expected to begin cutting rates in June.
Against the dollar, the euro rose almost 0.2% to $1.0873 as traders also prepared for the ECB's interest rate decision later on Thursday.
The central bank is expected to keep interest rates at a record 4%, with an emphasis on hints about when cuts might begin.
“We expect that they will reiterate their message and that nothing will change in the outlook tomorrow,” Danske Bank’s Mellin said.
“The ECB is on track for easing in June.”
The yen edged higher after reports some Bank of Japan board members deemed it appropriate to raise interest rates out of negative territory at the March meeting. The dollar was last down 0.2% at 149.75 yen.
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Analysts largely expect the BoJ to exit negative interest rates at its April meeting if spring wage negotiations in Japan result in solid wage increases.
Sterling rose slightly to $1.2723 ahead of Britain's budget announcement on Wednesday. Reports on Tuesday suggest cuts to Social Security are likely. However, with markets still reeling from the unfunded tax cuts in the September 2022 mini-budget, the scope remains slim.
“Although the pound showed little reaction to yesterday's rumors, this could change if there are significant tax cuts,” said Michael Pfister, FX analyst at Commerzbank.
“With the country’s finances already strained, the market may once again wonder whether this is overkill.”
The Australian dollar beat gross domestic product data that showed the economy grew just 0.2% in the fourth quarter, bolstering the case for interest rate cuts. The currency was last up 0.3% at $0.6524.
As a result, the dollar index, which measures the currency against a basket of six other currencies, fell about 0.1% to 103.63.
Markets are also keeping an eye on the world's largest cryptocurrency, Bitcoin, after it rose to a record high on Tuesday and then fell sharply.
It was last up 5.7% at $66,975. Bitcoin has gained sharply since October as investors poured money into U.S. cryptocurrency exchange-traded products and the prospect of a decline in global interest rates, hitting an all-time high of $69,202 on Tuesday.
Ether, the second-largest cryptocurrency, rose 10% to its highest level since December 2021 at $3896.10.
(Reporting by Samuel Indyk and Brigid Riley; Editing by Shri Navaratnam, Lincoln Feast, Sharon Singleton and Emelia Sithole-Matarise)