By Rae Wee
SINGAPORE, March 9 (Reuters) - The dollar was perched
near a three-month high on Thursday as Federal Reserve Chair
Jerome Powell's message that interest rates would have to go
higher and possibly faster to tame inflation dominated sentiment
and kept the U.S. currency in bid.
In the second day of his testimony to Congress on Wednesday,
Powell reaffirmed his hawkish message, though struck a cautious
note that debate on the scale and path of future rate hikes was
still underway and would be data-dependent.
That caused the U.S. dollar to pause its towering rally from
earlier in the week, retreating from close to a three-month top
against the Japanese yen to last stand at 136.86.
The euro and sterling similarly edged
away from their multi-month lows, rising 0.02% to $1.0546 and
0.09% to $1.1854, respectively.
As a result, the U.S. dollar index , which measures
the greenback against a basket of six peers, slipped 0.02% to
105.61.
The index, however, remained near a three-month peak of
105.88 hit in the previous session, having extended Tuesday's
1.3% surge, its biggest daily jump since last September.
"Powell conceded that the March decision is data-dependent,"
said Thierry Wizman, Macquarie's global FX and rates strategist.
"The question facing us, therefore, is whether January's
economic reacceleration was a blip or a trend."
A slew of strong economic data out of the United States in
previous weeks, pointing to persistent inflationary pressures,
led to Powell saying on Tuesday that the Fed will likely need to
raise interest rates more than expected, and was prepared to
move in larger steps.
Traders scrambled to reprice a more aggressive pace of
interest rate hikes in the wake of Powell's comments, with Fed
funds futures now implying a 70% chance the Fed will raise rates
by 50 basis points this month, up from just about 9% a month
ago. U.S. rates are also seen holding above 5.5% through to the
end of the year.
Conversely, the Bank of Canada on Wednesday left its key
overnight interest rate on hold at 4.50%, becoming the first
major central bank to suspend its monetary tightening campaign.
The Canadian dollar stood at 1.3808 per U.S. dollar
on Thursday, after having weakened to a more than four-month low
in the previous session following the decision.
The Australian dollar was likewise kept under
pressure for a similar reason, falling 0.06% to $0.6586 in Asia
trade, after Reserve Bank of Australia Governor Philip Lowe on
Wednesday said the central bank was closer to pausing on rate
hikes and suggested a halt could come as soon as April.
"Lowe seemed open to a growing divergence in the path of
monetary policy between Australia and the U.S.," said Belinda
Allen, senior economist at Commonwealth Bank of Australia.
Elsewhere, the kiwi rose 0.03% to $0.6107, having
slumped to a near four-month low in the previous session.
The Chinese offshore yuan languished near the key
psychological level of 7 per dollar, and was last at 6.9657,
ahead of Chinese inflation data due later on Thursday.
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(Reporting by Rae Wee; Editing by Sonali Paul)
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