Dollar Gains Momentum Ahead of Powell's Testimony

Dollar Gains Momentum Ahead of Powell's Testimony

The U.S. dollar index rebounded from a 3-week low, closing up by 0.12%, ahead of Federal Reserve Chair Jerome Powell’s semiannual testimony to Congress. The stronger-than-expected U.S. May consumer credit report also supported the dollar. Market participants are discounting the likelihood of a rate cut at 6% for the July 30-31 FOMC meeting and 72% for the September 17-18 meeting. In contrast, the Eurozone's July Sentix investor confidence index fell more than anticipated to a 4-month low, coupled with weaker-than-expected German trade news for May. The euro initially rose due to reduced political tensions in France and comments from ECB Governing Council member Muller on the need to avoid hasty interest rate cuts, but it stabilized later. Meanwhile, the Japanese yen fell back from a 1-1/2 week high against the dollar, posting modest losses due to bond yield divergence.

In India, the Rupee weakened due to a stronger U.S. Dollar and concerns over potential disruptions in U.S. oil supply. Rising bets on a September rate cut by the U.S. Federal Reserve, spurred by cooling U.S. labor market data, also impacted the Rupee. The local currency was further pressured by persistent U.S. Dollar demand from local oil companies and other importers. Traders are closely monitoring Fed Chair Powell's testimony, which is expected to provide further guidance on U.S. monetary policy. India’s employment growth rate for the current fiscal year stands at 6%, up from 3.2% in the previous fiscal year.

Gold prices rose slightly by 0.1% to $2,361.77 per ounce, recovering after a more than 1% decline on Monday. Investors are anticipating Powell's testimony and key June inflation data to gauge the Federal Reserve's future monetary policy moves. Other precious metals also saw gains, with spot silver rising by 0.2% to $30.84 an ounce and platinum by 0.9%.

Overall, the U.S. dollar index rose from near-month lows as markets await Powell's testimony. Traders have priced in a 76% chance of a rate cut in September, up from 66% a week ago. The focus remains on how Powell will balance concerns about inflation, economic slowdown, and labor market conditions in his address to Congress.


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