Dollar Down, Investors Await U.S. Inflation Data

© Reuters.

By Gina Lee

AiVIF.com – The dollar was down on Wednesday morning in Asia, dropping to its weakest since November 2021 after U.S. Federal Reserve Chairman Jerome Powell’s warning that it could take several months to decide on running down the central bank's $9 trillion balance sheet.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.07% to 95.560 by 10:07 PM ET (3:07 AM GMT), its lowest level since Nov. 30.

The USD/JPY pair inched up 0.06% to 115.35. The dollar recovered against the yen from a one-week low of 115.045 hit earlier in the week.

The AUD/USD pair inched up 0.09 % to 0.7216, with the riskier Australian dollar hitting its highest level in almost a week. The NZD/USD pair inched up 0.07% to 0.6791.

The USD/CNY pair edged down 0.13% to 6.3655. Wednesday’s Chinese data showed that the consumer price index (CPI) grew 0% month-on-month and 1.5% year-on-year, while the producer price index (PPI) grew 10.3% year-on-year in December.

The GBP/USD pair inched up 0.08% to 1.3645, with the pound rising to $1.3641 for the first time since Nov. 4, 2021.

Powell was speaking at a U.S. Senate Banking Committee hearing for his re-nomination at the Fed’s helm. He said the U.S. economy was ready for higher interest rates and a runoff of its asset holdings, or quantitative tightening, to tackle inflation. However, he added that approaches to reducing the Fed's balance sheet are currently being debated, and it could take anywhere from two to four meetings for the decisions to be made.

However, other Fed officials adopted a more dovish tone, which soothed market fears of a sudden quantitative tightening. One such official was Atlanta Fed President Raphael Bostic, who said on Monday that high inflation and a strong recovery warrant a rapid rundown of Fed asset holdings.

"While Powell didn't really push back on market pricing around expected Fed rate hikes, we've certainly seen relief play out across markets" after he "tried to remove a belief that they are stuck on a set path," Pepperstone head of research Chris Weston said in a note.

"Risk is buoyant," weighing on both the dollar and the safe-haven yen, the note added.

Investors now await the U.S. CPI and Fed Beige Book, due later in the day. The PPI will follow a day later.