Powell is back for more testimony from 1500 GMT. Ahead of that is an appearance from European Central Bank head Christine Lagarde at 1000 GMT and, at 0930 GMT a speech from Bank of England committee member Swati Dhingra. The Canadian dollar - last at 1.3762 to its U.S. counterpart and down more than 1% since Monday - may be vulnerable to further weakness if Canada's central bank holds rates steady later in the day, as expected. "Rate differentials in Canada compared to the U.S. leaves the Canadian dollar under pressure, that's something the Bank of Canada will need to follow due to imported inflation," Nordea's Cekov said.
The Australian dollar has weakened for a similar reason as the Reserve Bank of Australia has softened its tone. Having dropped over 2% on Tuesday, the Australian dollar weakened a bit more to hit a four-month low of $0.6568 on Wednesday. Powell's remarks also sent short-term rate expectations higher, with traders now anticipating around a 65% chance of a 50 basis point U.S. rate hike in March, according to CME's FedWatch tool, up from about a 30% chance a day earlier. Futures imply U.S. rates peaking above 5.6% and holding above 5.5% through 2023. Traders have a laser-focus on Friday's U.S. payrolls data and next week's inflation figures. "If those data prints exceed expectations at all, based on what Powell said, that'd pretty much guarantee a 50-basis point hike in March," said IG Markets analyst Tony Sycamore in Sydney. The U.S. dollar index rose as much as 0.2% to a more than 3-month high of 105.88, having jumped by 1.3% on Tuesday, its biggest daily increase since Sep. 23, 2022.
Sterling fell marginally to $1.1811, its lowest
since late November. China's yuan finished the domestic session at
6.9706 per dollar, the weakest such close since Dec. 29, 2022.
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(Reporting by Tom Westbrook; Editing by Simon Cameron-Moore)
