(Updates prices, adds comment)
By Rae Wee and Joice Alves
SINGAPORE/LONDON, March 9 (Reuters) - The dollar held
near a three-month high on Thursday, underpinned by Federal
Reserve Chair Jerome Powell's message that interest rates will
have to go higher and possibly faster than investors previously
anticipated.
The yuan fell after China reported unexpectedly low
inflation.
In the second day of his testimony to Congress on Wednesday,
Powell reiterated his message, though he struck a cautious note,
saying debate on the scale and path of future rate hikes was
still underway and would depend on data.
The U.S. dollar index eased 0.1% to 105.44, but was
within sight of Wednesday's three-month high at 105.88.
It was last down by 0.8% against the yen at
136.29, while the euro and sterling both edged up.
The euro was last up 0.1% at $1.0555, while
sterling rose 0.4% to $1.1885. The pound has lost 1.5%
this week against the dollar, underperforming the euro and the
yen, which have lost 0.7% and 0.3% against the U.S. currency,
respectively.
"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 U.S. strong economic data in recent weeks,
pointing to persistent inflationary pressures, led to Powell
saying on Tuesday that the Fed would likely need to raise
interest rates more than expected.
Fed funds futures now imply a nearly 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.
"The reality remains that markets are slowly starting to
come to the realisation that rates are likely to remain higher
for longer and that the terminal rate is also likely to settle
at a much higher level," CMC Markets chief strategist Michael
Hewson said.
The yuan weakened after China posted data showing the
slowest annual consumer price inflation in a year in February,
fanning doubts about the pace of economic recovery.
The Chinese offshore yuan languished near the key
psychological level of 7 per dollar, and was last 0.2% lower on
the day at 6.981.
RATE HIKES ON PAUSE
The Bank of Canada on Wednesday left its key overnight
interest rate on hold at 4.50%, in a sign that major central
banks are beginning to pause their monetary tightening
campaigns.
On Thursday, the Canadian dollar weakened to an
almost five-month low and was last flat at 1.3805 per U.S.
dollar.
The Australian dollar was likewise kept under
downward pressure and for a similar reason, though was last 0.3%
higher at $0.6611.
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.
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(Reporting by Rae Wee in Singapore and Joice Alves in London;
Editing by Bradley Perrett and Susan Fenton)
