April 15, 2024

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US Dollar Slides Ahead of Powell Speech, Bitcoin Resumes Rally

US Dollar Slides Ahead of Powell Speech, Bitcoin Resumes Rally

Written by Samuel Indyk and Brigid Riley

LONDON (Reuters) – The U.S. dollar was a little softer on Wednesday, as traders kept the powder dry ahead of the first phase of Federal Reserve Chairman Jerome Powell's testimony to Congress and the European Central Bank's policy announcement on Thursday.

Meanwhile, Bitcoin was gaining ground again, although it remained below the record high it reached the day before.

The absence of major catalysts kept the dollar in decline, after it fell on Tuesday after data showed a slowdown in the growth of the US service industry last month.

Traders are now awaiting the first day of Fed Chairman Powell's testimony before Congress on the state of the US economy, where he is expected to confirm that the Fed will wait for more data before making any interest rate cuts.

“I think it will speak to previous comments that they are data driven and that they might cut interest rates at an upcoming meeting without specifying a specific meeting,” said Stefan Melin, chief FX strategist at Danske Bank.

Melin added: “We believe that there will be a synchronized easing cycle, which means that the interest rate gap between Europe and the United States will continue. This is positive for the dollar from our point of view.”

Markets are pricing in about 90 basis points of easing from both the Federal Reserve and the European Central Bank this year, with both expected to start cutting interest rates in June.

Against the dollar, the euro rose about 0.2 percent to $1.0873, with traders also awaiting the European Central Bank’s decision on the interest rate later on Thursday.

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The central bank is expected to leave interest rates at a record 4%, putting the focus on evidence about when the cut might begin.

“We believe they will repeat their message again, and tomorrow will not change the outlook,” Danske Bank's Melin said.

“ECB on track to ease monetary policy in June.”

The yen strengthened modestly amid reports that some members of the Bank of Japan's board believe it would be appropriate to raise interest rates from negative territory at the March meeting. The dollar fell in recent trading by 0.2 percent to 149.75 yen.

Analysts mostly expect the Bank of Japan to exit negative interest rates at its April meeting if Japan's spring wage negotiations result in strong wage increases.

The British pound rose to $1.2723 ahead of the UK budget announcement on Wednesday, with reports on Tuesday suggesting cuts to National Insurance are likely, but with markets still affected by the unfunded tax cuts of the September 2022 mini-budget, room for maneuver remains small.

“Although the pound barely responded to yesterday's rumors, this could change if there are significant tax cuts,” said Michael Pfister, foreign exchange market analyst at Commerzbank.

“With the country's finances already stretched thin, the market may once again wonder whether this is too good a thing.”

The Australian dollar ignored GDP data that showed the economy grew by only 0.2% in the fourth quarter, strengthening the justification for cutting interest rates. The currency rose in recent transactions by 0.3% to $0.6524.

That left the dollar index, which measures the currency against a basket of six other currencies, down about 0.1% to 103.63.

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Markets are also closely watching the world's largest cryptocurrency, Bitcoin, after it rose to a record high on Tuesday before falling sharply.

It rose in recent trading by 5.7% to $66,975. Bitcoin has risen strongly since October, as investors poured money into U.S. exchange-traded cryptocurrency products and on the prospect of lower global interest rates, reaching an all-time high of $69,202 on Tuesday.

Ethereum, the second-largest cryptocurrency, jumped 10% to its highest levels since December 2021 at $3,896.10.

(Reporting by Samuel Indyk and Brigid Riley; Editing by Shri Navaratnam, Lincoln Feast, Sharon Singleton and Emilia Sithole-Matarise)