Dollar dips, Powell testimony and jobs data in focus

By Karen Brettell

NEW YORK (Reuters) – The greenback slipped against a basket of currencies on Monday as investors awaited testimony by Federal Reserve Chair Jerome Powell and jobs data due later this week for further indications on how much higher the U.S. central bank is likely to raise interest rates.

Powell’s testimony before Congress on Tuesday and Wednesday and Friday’s jobs data “are going to be the key events this week that really substantiate the data that we got last month with respect to the January” numbers, said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.

The dollar index has bounced off a nine-month low of 100.80 reached on Feb. 1 as strong data and still-high inflation leads investors to reprice for higher rates for longer. The index was last down 0.26% on the day at 104.35.

January’s jobs report released on Feb. 3 showed that employers unexpectedly added 517,000 jobs, while the unemployment rate hit more than a 53-1/2-year low of 3.4%, pointing to a stubbornly tight labor market.

That “seems a bit suspicious at the surface, so a lot of the data that we get this week will tell us whether or not that’s really more than just suspicious or more than, say, seasonal adjustment trends, and actually something there that the Fed is getting wrong in terms of how tight the labor market is and what that means potentially for inflation,” said Rai.

Data on Monday showed that new orders for U.S.-manufactured goods fell in January, pulled down by a plunge in civilian aircraft bookings.

The New York Fed also said that global supply chains have “returned to normal,” with pressures dropping to the lowest since before the COVID-19 pandemic.

Powell’s testimony will be watched for any new signals on whether the U.S. central bank could reaccelerate the pace of rate hikes in response to the recent data. After delivering jumbo hikes last year, the Fed has raised interest rates by 25 basis points each at its last two meetings.

Fed funds futures traders are pricing in a 76% probability the Fed will raise rates by 25 basis points at its March 21-22 meeting, and a 24% likelihood of a 50 basis points increase.

Analysts also note, however, that the Fed may be reluctant to increase the pace of rate hikes again as it would likely spook investors by indicating that the bank made a mistake in switching to 25 basis point increases.

The Chinese yuan and Aussie dollar fell after China on Sunday set a lower-than-expected target for economic growth this year of around 5%.

“China’s 5% growth target… underwhelmed, supporting our view that there is an overly optimistic view of China reflation that could challenge some FX proxies,” analysts at TD Securities led by Mark McCormick said in a report.

The greenback gained 0.81% against the offshore yuan to 6.9519 per dollar, while the Aussie, often traded as a liquid proxy for the yuan, dropped 0.67% to $0.6723.

The euro was last up 0.35% on the day at $1.0671, while sterling was down 0.20% at $1.2019.

The dollar gained 0.15% to 136.02 yen ahead of the final policy meeting for Bank of Japan Governor Haruhiko Kuroda on Thursday and Friday.

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Currency bid prices at 2:10PM (1910 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.3500 104.6300 -0.26% 0.831% +104.6900 +104.1500

Euro/Dollar $1.0671 $1.0634 +0.35% -0.41% +$1.0695 +$1.0615

Dollar/Yen 136.0150 135.8050 +0.15% +3.73% +136.1850 +135.3750

Euro/Yen 145.15 144.46 +0.48% +3.46% +145.3800 +144.1300

Dollar/Swiss 0.9323 0.9361 -0.43% +0.80% +0.9372 +0.9306

Sterling/Dollar $1.2019 $1.2043 -0.20% -0.62% +$1.2048 +$1.1994

Dollar/Canadian 1.3617 1.3599 +0.13% +0.50% +1.3629 +1.3584

Aussie/Dollar $0.6723 $0.6769 -0.67% -1.37% +$0.6769 +$0.6716

Euro/Swiss 0.9949 0.9955 -0.06% +0.55% +0.9966 +0.9924

Euro/Sterling 0.8877 0.8829 +0.54% +0.37% +0.8887 +0.8827

NZ $0.6183 $0.6223 -0.63% -2.61% +$0.6225 +$0.6173

Dollar/Dollar

Dollar/Norway 10.4330 10.3950 +0.33% +6.27% +10.4720 +10.3700

Euro/Norway 11.1348 11.0384 +0.87% +6.11% +11.1436 +11.0452

Dollar/Sweden 10.4654 10.4485 +0.47% +0.55% +10.5059 +10.4389

Euro/Sweden 11.1678 11.1161 +0.47% +0.16% +11.1765 +11.1180

(Reporting by Karen Brettell; additional reporting by Amanda Cooper in London; editing by Jonathan Oatis)