Dollar climbs to 3-month highs; hawkish Powell provides support

On the first day of his hearing before the United States Congress, Federal Reserve Chair Jerome Powell led towards a higher terminal rate than previously predicted, sending the US dollar to three-month highs.

The US Dollar Index, which monitors the dollar against a basket of six other currencies, was 0.1% higher at 105.705 at 03:10 ET (08:10 GMT), having earlier reached its highest level in three months at 105.868.

Powell spoke before the Senate Banking Committee on Tuesday, saying that recent U.S. inflation and employment statistics had been higher than expected, and that interest rates would likely have to rise more than previously thought.

This resulted in U.S. Treasury yields surging higher, with two-year yields climbing past 5% for the first time since 2007, and a further inverting of the yield curve.

Powell returns to Capitol Hill later Wednesday, this time testifying to the House Financial Services Committee.

Ahead of this, there is more economic data to study, in the form of the February ADP nonfarm employment change and the JOLTS job openings for January.

These will provide clues about the health of the U.S. labor market ahead of Friday’s official jobs report, which is expected to show the economy added 200,000 jobs last month.

Elsewhere, EUR/USD traded largely unchanged at 1.0545, after earlier falling to a two-month low at 1.0525, recovering after German industrial production rebounded by more than expected in January, rising 3.5% on the month after a revised drop of 2.4% the prior month.

Recent data has tended to suggest that the Eurozone’s largest economy has weathered the storm of soaring energy prices better than had been feared.

That said, the country’s consumers are still under pressure, as retail sales fell 0.3% on the month in February, an improvement from the 5.3% drop in January but still below expectations.

Later in the afternoon, European Central Bank President Christine Lagarde is due to appear in Geneva, and her remarks will be closely scrutinised for hints about future monetary policy.

GBP/USD fell to multi-month lows following Powell’s hawkish comments, according to Bank of England policymaker Catherine Mann, and might fall further in the coming months.