By Saqib Iqbal Ahmed
NEW YORK, March 7 (Reuters) – The dollar fell across the board on Thursday, as Federal Reserve Chair Jerome Powell said the U.S. central bank is “not far” from getting enough confidence that inflation is heading to the Fed’s 2% goal to be able to start interest-rate cuts.
The euro, which had stumbled initially after the ECB kept rates steady even as it acknowledged cooling inflation, recovered to hit a six-week high against the greenback amid broad dollar weakness.
“We are waiting to become more confident that inflation is moving sustainably to 2%. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession,” Powell said in a hearing before the Senate Banking Committee.
The remarks follows Federal Reserve Chair Jerome Powell‘s remarks on Wednesday where he told lawmakers interest rate cuts were still likely in coming months but only if warranted by further evidence of falling inflation.
“Powell seemed more dovish today than he did yesterday,” Marc Chandler, chief market strategist at Bannockburn Global Forex, said.
Investors’ growing appetite for riskier assets, including stocks, also weighed on the dollar, Chandler said.
The euro was 0.35% up against the dollar at $1.0932, a six-week high.
The European Central Bank kept borrowing costs at record highs on Thursday and stressed that, while inflation was easing faster than it anticipated only a few months ago, it was still not ready to lower rates.
“We are making good progress towards our inflation target and we are more confident as a result – but we are not sufficiently confident,” ECB President Christine Lagarde told a press conference.
While the policymakers did not discuss cuts for this meeting, they are just beginning to discuss the dialling back of their restrictive stance, Lagarde said.
Thursday’s strength in the euro was more to do with the broad weakness in the greenback than any big change in investors’ attitude toward the common currency, analysts said.
“We’re viewing it as mainly a function of dollar dynamics,” Simon Harvey, head of FX analysis at MonFX, said.
“Long positioning that was built pre-Powell on a higher for longer Fed stance has been flushed out of markets over the past 24 hours,” he said.
Data on Thursday showed the number of Americans filing new claims for unemployment benefits was unchanged last week as the labor market continued to gradually ease. The Labor Department’s February employment report is due on Friday.
Meanwhile, the yen was set for its biggest jump versus the dollar this year on Thursday, driven by growing speculation that the Bank of Japan could finally raise rates this month.
Against the yen, the dollar was down 0.84% to 148.16, the weakest it has been in more than a month.
BOJ board member Junko Nakagawa said on Thursday Japan’s economy was moving steadily towards sustainably achieving the central bank’s 2% inflation target.
The yen has been under pressure for most of the past two years because of the gap between sub-zero Japanese interest rates and a global rise in rates, as other major central banks aggressively hiked interest rates to tame inflation.
With market participants significantly short the Japanese currency, anything that even mildly supports the yen can spark a sharp move in the Japanese currency, CIBC’s Rai said.
Speculators’ net short positioning on the yen stood at 132,705 contracts, the largest bearish position in more than six years, according to CFTC data for the week ended Feb. 27.
In cryptocurrencies, bitcoin BTC= remained below the record high struck earlier in the week, but rose 2.0% on the day to $67,776.
World FX rates https://tmsnrt.rs/2RBWI5E
(Reporting by Saqib Iqbal Ahmed; Additional reporting by Amanda Cooper and Rae Wee; Editing by Emelia Sithole-Matarise, David Evans and Ros Russell)
(([email protected]; @SaqibReports; +1 332 219 1971; Reuters Messaging: [email protected]))
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