(Adds analyst comment, updates prices)
Dollar outlook remains tilted to downside, analysts say
Rate futures price in rate cuts by end-2023
NY Fed's Williams says peak rate likely between 5%-5.25%
Investors parsing hawkish ECB comments
The dollar was little changed to marginally higher on Wednesday as investors paused selling the greenback a day after Federal Reserve Chair Jerome Powell did not significantly change his interest rate outlook despite a strong U.S. jobs report last week.
The greenback's outlook, however, remained tilted to the downside as the Fed nears the end of its tightening cycle and the markets price in rate cuts by the end of the year, analysts said.
In a question-and-answer session before the Economic Club of Washington on Tuesday, Powell said interest rates might need to move higher than expected if the U.S. economy remains strong, but reiterated he felt a process of "disinflation" is underway.
The greenback slipped as Powell spoke. "The dollar weakened because Powell was not hawkish. There were a few nuggets in his speech that suggested that the jobs report has not materially shifted the Fed's outlook," said Thierry Wizman, global FX and rates strategist at Macquarie in New York. "Despite the data dependency of the outlook since last week, Powell did not even answer questions on whether or not he would have raised rates by more had he seen (the jobs report). Based on that demeanor, he would have not raised more and the outlook itself has not changed on one data point."
New York Fed President John Williams on Monday added to Fed rhetoric of further pushing U.S. rates higher. He told a Wall Street Journal event that moving to a federal funds rate of between 5.00% and 5.25% "seems a very reasonable view of what we'll need to do this year in order to get the supply and demand imbalances down."
In afternoon trading, the euro EUR=EBS was modestly lower at $1.0724 after falling to $1.067 the previous session, its lowest since Jan. 9. It remained far above September's 20-year low of $0.953.
Investors also digested hawkish comments from two German officials at the European Central Bank (ECB). "From where I stand today we need further, significant rate hikes," German central bank chief Joachim Nagel told the newspaper Boersen-Zeitung on Tuesday.
His colleague Isabel Schnabel said it is not yet clear that the ECB rate hikes so far would bring inflation back to 2%.
Against a basket of currencies, the U.S. dollar =USD index was narrowly up at 103.38, after slipping the previous session.
Sterling GBP=D3 rose 0.2% to $1.207, recovering from Tuesday's one-month trough of $1.196. The greenback had a short-lived rally following Friday's blockbuster jobs report, which showed that non-farm payrolls had surged by 517,000 jobs last month.
That sent the U.S. dollar index to a one-month high of 103.96 on Tuesday, as investors raised their expectations of how much further the Fed would need to keep raising interest rates.
Futures pricing FEDWATCH on Wednesday showed that markets are expecting the Fed funds rate to peak just above 5.1% by July, from a range of 4.5% to 4.75% currently. But the market has priced in Fed cuts as well with the implied fed funds rate at 4.8% by the end of the year.
"As the market is pricing in a higher terminal rate, the market is also pricing in higher cuts of 25 or 50 basis points at the end of the year," said Joe Perry, senior market analyst at FOREX.com and City Index in New York. "That's negative for the dollar."
Meanwhile, according to pricing in derivatives markets EUESTECBF=ICAP , traders expect the ECB to hike rates to rise to around 3.5% in late summer, from 2.5% now.
Elsewhere, the dollar rose 0.2% against the yen to 131.355 yen JPY=EBS Japanese real wages rose for the first time in nine months thanks to robust temporary bonuses, data on Tuesday showed.
The New Zealand dollar NZD=D3 dipped 0.2% to US$0.6308. The Aussie dollar AUD=D3 slipped 0.5% to US$0.6925 after surging more than 1% on Tuesday.
The Reserve Bank of Australia on Tuesday raised its cash rate by 25 basis points.
======================================================== Currency bid prices at 3:06PM (2006 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 103.4300 103.3100 +0.14% -0.058% +103.4900 +102.9900 Euro/Dollar EUR=EBS $1.0718 $1.0729 -0.10% +0.03% +$1.0761 +$1.0714 Dollar/Yen JPY=EBS 131.3700 131.0900 +0.21% +0.19% +131.5250 +130.6000 Euro/Yen EURJPY= 140.81 140.62 +0.14% +0.36% +141.0300 +140.3000 Dollar/Swiss CHF=EBS 0.9204 0.9223 -0.22% -0.48% +0.9223 +0.9179 Sterling/Dollar GBP=D3 $1.2067 $1.2050 +0.15% -0.21% +$1.2109 +$1.2043 Dollar/Canadian CAD=D3 1.3443 1.3401 +0.31% -0.78% +1.3444 +1.3361 Aussie/Dollar AUD=D3 $0.6922 $0.6960 -0.47% +1.61% +$0.6996 +$0.6924 Euro/Swiss EURCHF= 0.9864 0.9888 -0.24% -0.29% +0.9895 +0.9867 Euro/Sterling EURGBP= 0.8879 0.8902 -0.26% +0.40% +0.8911 +0.8875 NZ NZD=D3 $0.6305 $0.6326 -0.31% -0.69% +$0.6348 +$0.6298 Dollar/DollarDollar/Norway NOK=D3 10.3135 10.3255 -0.25% +4.95% +10.3325 +10.2320 Euro/Norway EURNOK= 11.0589 11.0619 -0.03% +5.39% +11.0792 +10.9966 Dollar/Sweden SEK= 10.5963 10.5689 +0.16% +1.80% +10.6165 +10.4972 Euro/Sweden EURSEK= 11.3568 11.3385 +0.16% +1.86% +11.3809 +11.2930 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5EEuro vs. dollar https://tmsnrt.rs/3YAmYQ8
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