(Adds quotes, details; updates prices; changes byline, dateline, previous LONDON)
By Karen Brettell
NEW YORK, March 8 (Reuters) - The dollar dipped modestly from three-month highs reached earlier on
Wednesday as investors adjusted for the prospect of higher rates for longer after Federal Reserve Chairman
Jerome Powell on Tuesday surprised markets with a more hawkish rate outlook.
Powell said that the Fed will likely need to raise interest rates more than expected in response to
recent strong data and is prepared to move in larger steps if the "totality" of incoming information
suggests tougher measures are needed to control inflation.
That prompted traders to reprice their rate expectations. Fed funds futures traders now see a 66%
probability of a 50 basis-point hike at the Fed’s March 21-22 meeting, up from around 22% before Powell
spoke on Tuesday. The rate is now expected to peak at 5.62% in September. “I don’t think Powell told us anything we didn’t already know. I think it just shows the market
sensitivity and uncertainty about where the peak Fed funds rate’s going to be,” said Marc Chandler, chief
market strategist at Bannockburn Global Forex in New York.
Powell is expected to repeat his comments in testimony before Congress on Wednesday.
Investors are now focused on February jobs data due on Friday for confirmation that continued strong
jobs growth supports more rate increases. The dollar has jumped since data on Feb. 3 showed that employers
added 517,000 jobs in January.
However, that “seems to be a fluke - warm weather, benchmark revisions, these kinds of things,” said
Chandler. “The dollar had a big four-month selloff and I think that so far it still looks corrective in
nature, that is I don’t think that we’re going to go back and retest the September and October dollar
highs.”
Economists are projecting job gains of 203,000, while wages are expected to rise 0.3% for the month and
4.8% on an annual basis. The dollar index was last down 0.09% on the day against a basket of currencies at 105.54, after
earlier reaching 105.88, the highest since Dec. 1. It is up from a nine-month low of 100.80 on Feb. 1 but
remains well below a 20-year high of 114.78 reached on Sept. 28.
The ADP National Employment report on Wednesday showed that private employment increased by 242,000 jobs
last month.
The euro gained 0.03% to $1.0551. It fell to $1.0524 earlier and is trading just above this
year's low of $1.04820 reached on Jan. 6.
“Friday’s U.S. employment data now take on particular significance” after Powell’s comments, Credit
Suisse analysts including Shahab Jalinoos said in a report on Wednesday. “Data strong enough to show the
rates market is not being hysterical in pricing higher Fed rates for longer would risk a test of 2023 EURUSD
lows.”
The dollar fell 0.26% to 136.80 yen , after earlier reaching 137.90, the highest since Dec. 15.
Sterling gained 0.06% to $1.1834, after earlier falling to $1.18105, the lowest since Nov. 21. The
Aussie was up 0.23% at $0.6600, after reaching $0.6568 earlier, the lowest since Nov. 10.
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Currency bid prices at 9:39AM (1439 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Previous Change
Session
Dollar index 105.5400 105.6500 -0.09% 1.981% +105.8800 +105.4600
Euro/Dollar $1.0551 $1.0548 +0.03% -1.53% +$1.0562 +$1.0524
Dollar/Yen 136.8000 137.1550 -0.26% +4.34% +137.9050 +136.6900
Euro/Yen 144.33 144.68 -0.24% +2.87% +145.2300 +144.2900
Dollar/Swiss 0.9413 0.9422 -0.10% +1.80% +0.9438 +0.9405
Sterling/Dollar $1.1834 $1.1827 +0.06% -2.15% +$1.1847 +$1.1811
Dollar/Canadian 1.3771 1.3755 +0.11% +1.63% +1.3773 +1.3745
Aussie/Dollar $0.6600 $0.6585 +0.23% -3.18% +$0.6613 +$0.6568
Euro/Swiss 0.9930 0.9936 -0.06% +0.35% +0.9943 +0.9925
Euro/Sterling 0.8914 0.8916 -0.02% +0.79% +0.8923 +0.8897
NZ $0.6119 $0.6107 +0.36% -3.47% +$0.6131 +$0.6086
Dollar/Dollar
Dollar/Norway 10.6370 10.6920 -0.49% +8.42% +10.7170 +10.6270
Euro/Norway 11.2263 11.2701 -0.39% +6.98% +11.3018 +11.1995
Dollar/Sweden 10.6854 10.7242 -0.34% +2.67% +10.7608 +10.6632
Euro/Sweden 11.2752 11.3142 -0.34% +1.13% +11.3385 +11.2545
(Reporting by Karen Brettell; Editing by Nick Macfie)
