The dollar fell in European trade on Thursday to five-week lows against a basket of major rivals, extending losses for the fifth straight session as US treasury yields swooned, as the odds of a Fed interest rate cut in June surged.
The odds rallied after Fed Chair Jerome Powell’s first half of his Congressional testimony yesterday, with markets awaiting the second half later today.
The Index
The dollar index fell 0.15% to 103.15, the lowest since February 2, with a session-high at 103.35.
The index lost 0.4% on Wednesday, the fourth loss in a row following Powell’s remarks.
US Treasury Yields
US 10-year treasury yields slipped 0.2% on Thursday on track for the third loss in a row, plumbing a four-week trough at 4.081% and hurting dollar’s appeal.
The drop comes after Powell’s testimony ahead of Congress, which clearly supported the case for starting the cycle of policy easing this year.
Powell
Powell testified ahead of Congress today, expecting interest rate cuts this year but warning from taking rash policy decisions.
He said that policymakers remain cautious about inflation risks, and the FOMC will not move to cut interest rates until it’s reasonably confident that inflation will hit 2%.
Powell said that interest rates have peaked, and if the economy continued to develop in the way the Fed expects, it’s suitable for policy easing to start this year.
He nonetheless cautioned that the Fed isn’t yet completely confident that inflation will return to 2%, as upcoming data will determine the likely path ahead for interest rates.
US Rates
Following Powell’s testimony, the odds of an early US interest rate cut in May inched up to 28%, while the odds for such a cut in June rose to 73%.
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