LONDON :The U.S. dollar was a touch softer on Wednesday, as traders kept their powder dry ahead of the first leg of congressional testimony from Federal Reserve Chair Jerome Powell and the European Central Bank’s policy announcement on Thursday.

Meanwhile, bitcoin was picking up a head of steam again, although it stayed below the record high reached the day before.

The absence of major catalysts kept the dollar under pressure, having slipped on Tuesday after data showed U.S. services industry growth slowed last month.

Traders were now waiting on Fed chair Powell’s first day of testimony before Congress on the state of the U.S. economy, where he is expected to underline that the Fed will wait for more data before making any rate cuts.

“I think he will speak to previous comments that they’re data dependent and that they might cut rates at an upcoming meeting without specifying a particular one,” said Stefan Mellin, chief analyst, FX Strategy, at Danske Bank.

“We think there will be a synchronised easing cycle that means the rate gap between Europe and the U.S. is going to be maintained. That is positive for the dollar in our view,” Mellin added.

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

Against the dollar, the euro was up 0.1 per cent at $1.0873 as traders also braced for the ECB’s interest rate decision later on Thursday.

The central bank is expected to leave rates at a record 4 per cent, putting the focus on clues about when cuts may begin.

“We think they are going to echo their message again and tomorrow is not going to change the outlook,” Danske Bank’s Mellin said.

“The ECB is on the path to ease in June.”

The yen strengthened amid reports that some Bank of Japan board members think it would be appropriate to lift rates from negative territory at the March meeting. The dollar was last down 0.2 per cent to 149.75 yen.

Analysts are mostly expecting the BoJ to exit its negative interest rate policy at the April meeting, if Japan’s spring wage negotiations result in solid pay hikes.

Sterling edged up to $1.2728 ahead of the British budget announcement on Wednesday, with reports on Tuesday suggesting cuts to national insurance are likely, but with markets still haunted by the unfunded tax cuts of the September 2022 mini-budget, the room for manoeuvre remains small.

“Although the pound barely reacted to yesterday’s rumours, this may change if there are significant tax cuts,” said Michael Pfister, FX analyst at Commerzbank.

“With the country’s finances already stretched thin, the market may once again wonder if this is too much of a good thing.”

The Australian dollar recovered in the Asian afternoon, brushing off gross domestic product data that showed the economy grew a mere 0.2 per cent in the fourth quarter, reinforcing the case for rate cuts. The currency was last up 0.2 per cent at $0.65195.

That left the dollar index, which measures the currency against a basket of six others, down around 0.1 per cent at 103.64.

Markets are also keeping a close eye on the world’s largest cryptocurrency, bitcoin, after it surged to a record high on Tuesday before retreating sharply.

It was last up 6 per cent at $67,199. Bitcoin has rallied hard since October as investors poured money into U.S. spot exchange-traded crypto products and on the prospect that global interest rates may fall.

Ether, the second largest cryptocurrency, vaulted over 9 per cent to its highest since January 2022 at $3867.70.


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