FOREX-Dollar inches up as focus turns to Powell speech

BY Reuters | ECONOMIC | 02/07/23 08:25 AM EST

Feb 7 (Reuters) - The dollar hovered near one-month highs on Tuesday ahead of a speech by Federal Reserve Chair Jerome Powell that will be scoured by investors for any signals on how high U.S. interest rates may go this year.

The dollar index, which measures the performance of the greenback against a basket of six other currencies, erased session losses of up to 0.2% and edged up 0.1% to 103.68, holding around its highest since early January.

Investors will be looking for Powell's take on the labour market in a speech at the Economic Club of Washington due later in the day, after a sharp rise in jobs growth last week punctured hopes for a tempered Fed.

"The stronger U.S. data has clearly challenged market expectations for further U.S. dollar weakness in the near-term and for the Fed to soon bring an end to their rate hike cycle," said Lee Hardman, MUFG senior currency analyst.

U.S. interest-rate futures show that markets are expecting the Fed funds rate to peak just above 5.1% by June, compared with expectations of a peak below 5% prior to Friday's jobs report.

Friday's jobs report wrongfooted traders who were banking on an imminent pause in the Fed's rate-hike cycle, and gave the U.S. currency a leg up.

The euro fell 0.2% to $1.07025, having hit its lowest since Jan. 9 earlier in the day.

"(Powell) has the chance to walk back some of the commentary that he made on Wednesday last week that prompted this dovish read," said Simon Harvey, head of FX analysis at Monex, but added that he does not expect any new messaging from Powell.

"The Fed still has some progress to make, there are signs of positivity in terms of the disinflationary pressures that are in the pipeline, but there is still a labour market problem."

Sterling was last 0.3% down against the dollar at $1.1982, after tumbling to a one-month low of $1.1974 in the previous session.

Investors are looking for further commentary from central bankers this week following what was viewed as a dovish outcome of Bank of England's meeting last week.

The Australian dollar was up 0.6% at $0.6924 after having surged as much as 1% after the country's central bank raised its cash rate by 25 basis points and said more increases would be needed, a more hawkish policy tilt than many had expected.

The Japanese yen attempted to make back some of the losses over the last two sessions, with the dollar-yen pair down 0.4% at 132.14.

It moved away from Monday's one-month low of 132.90 per dollar hit after a report that Japan's government has sounded out Bank of Japan Deputy Governor Masayoshi Amamiya - considered by markets as more dovish than other contenders - to succeed incumbent Haruhiko Kuroda as central bank governor.

(Reporting by Rae Wee and Susan Mathew; Editing by Muralikumar Anantharaman, Kenneth Maxwell and Arun Koyyur)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.