July 9 (Reuters) - The U.S. dollar gained on Tuesday before Federal Reserve Chair Jerome Powell's testimony before Congress, with investors looking for any fresh clues on potential interest rate cuts as data points to a slowing economy.
Powell may offer a more dovish take on the economy as the labor market softens and inflation recedes closer to the Fed’s 2% annual target.
Fed officials projected only one rate cut this year in their “dot plot” of interest rate expectations at the U.S. central bank’s June meeting.
This followed hotter than expected inflation in the first quarter, and was down from expectations of three cuts this year in March.
On Tuesday Powell is likely to acknowledge that the "dot plot" is becoming more dated, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
He will also likely indicate that "incoming data has been boosting the Fed's confidence that the economy is slowing and that inflation is headed back towards its target”, Chandler added.
Traders have boosted bets since Friday’s jobs report that the Fed will cut twice by December, with the first reduction likely in September.
This week’s main U.S. economic focus will be Thursday’s consumer price index for June, which is expected to show that headline prices rose 0.1% on the month, while core prices gained 0.2%. That would put annual gains at 3.1% and 3.4%, respectively.
The dollar index, which measures the U.S. currency against the euro, sterling, yen and three other major rivals, was last up 0.11% at 105.08. It fell to 104.80 on Monday, the lowest since June 13.
The euro dipped after Monday's sharp swings as investors came to terms with a hung parliament in France, which points to a potential political gridlock but lessens fiscal concerns stemming from outright far-right or leftist victories.
French political leaders from the left-wing bloc that came first in Sunday's legislative election said they intended to govern according to their tax-and-spend program, but centrists laid claim to a role as the left lacks a majority.
The single currency was last down 0.07% at $1.0814. It reached $1.0845 on Monday, the highest since June 12.
The European Central Bank can continue to gradually reduce interest rates without jeopardizing a current fall in inflation, governing council member Fabio Panetta said on Tuesday.
The ECB cut rates for the first time in June from their record highs, but has made no explicit commitment on a follow-up move.
The dollar strengthened 0.19% to 161.11 Japanese yen. It is holding below a 38-year high of 161.96 reached last week.
Some market players called on the Bank of Japan to slow its bond buying to roughly half the current pace under a scheduled tapering plan due out this month, the central bank said on Tuesday.