Dollar regains strength as focus shifts to Powell’s testimony

The dollar is capitalizing on safe-haven flows early Wednesday and gathering strength against its major rivals. Investors grow increasingly concerned over a global recession as major central banks remain on track to continue to tighten their policies to battle inflation. FOMC Chairman Jerome Powell will testify before the US Senate Banking Committee in the hearing titled “The Semiannual Monetary Policy Report to the Congress.” The European economic docket will feature the European Commission’s preliminary Consumer Confidence Index data for June and Statistics Canada will release the May inflation report.

According to Bloomberg, Citigroup economists now see a nearly 50% chance of the global economy tipping into recession. Meanwhile, Richmond Fed President Thomas Barkis said that he was not expecting the US economy to experience the stable growth of the past decade at least for the next two years. Reflecting the risk-averse market environment, US stock index futures are down 1.2% and 1.4% in the early European session and the US Dollar Index is rising 0.4% at 104.83.

USD/JPY surged to a fresh multi-decade high on Tuesday as rising US Treasury bond yield’s fueled the pair’s rally. Earlier in the day, the minutes of the Bank of Japan’s (BOJ) latest policy meeting showed that board members agreed that there was no need to change the bank’s stance of taking additional easing steps without hesitation if needed. USD/JPY stays relatively quiet near mid-136.00s early Wednesday.

GBP/USD stays on the back foot and edges lower toward 1.220 in the European morning. The data published by the UK’s Office for National Statistics showed on Wednesday that annual inflation, as measured by the Consumer Price Index (CPI), edged higher to 9.1% in May from 9% in April. The Core CPI, however, declined to 5.9% from 6.2% in the same period and caused investors to reassess the Bank of England’s (BOE) rate outlook.

Pressured by the renewed dollar strength, EUR/USD retreated below 1.0500 in the early European session. European Central Bank (ECB) Governing Council member Olli Rehn said on Tuesday that it was very likely for the ECB to hike its policy rate by more than 25 bps in September. The positive impact of these comments on the shared currency faded with markets turning risk-averse mid-week.

Gold closed the third straight trading day in negative territory on Tuesday as the benchmark 10-year US Treasury bond yield registered modest gains. XAU/USD trades with modest losses slightly below $1,830 early Wednesday.

Bitcoin has lost its recovery momentum and was last seen falling toward $20,000. Ethereum is down more than 4% already on the day and trades below $1,100.

Subscribe to our newsletter

Don't miss new updates on your email