The dollar was firmer than Powell’s testimony, rising on hot inflation

SINGAPORE, June 21 (Reuters) – Federal Reserve Chairman Jerome Powell is expected to strike a hawkish tone on Wednesday ahead of an appearance before Congress, while sterling firmed slightly after warmer-than-expected British inflation data.

The annual pace of British consumer price gains was 8.7% in May and is believed to have cooled since April. Sterling was briefly up 0.3% against the dollar at $1.2803 before rebounding to $1.2765.

It also rose slightly against the euro and yen, as traders bet the Bank of England would take rates higher. Markets are now up another 150 basis points to peak at 6% in a year.

The euro was at $1.0914 in Asian trade, while the yen fell slightly to 141.80 to the dollar, Bank of Japan minutes and officials stuck in a bleak position and traders turned their attention to the central bank.

Powell is scheduled to begin his testimony before Congress at 1400 GMT.

“Despite last week’s pause, central bank officials … still surprisingly forecast another 50 basis point rate hikes by the end of 2023,” currency analysts at Maybank said.

“It will be critical to see whether (Powell) pushes home more strongly whether the Fed is serious about another 50 bps hikes or whether they will make it appear ‘data driven,'” they said. “The former could provide additional support to send the dollar index and generate more profit.”

Elsewhere, there is little appetite for a bounce from the yuan or the Australian dollar, which has been hit by China’s shaky economic recovery and major disincentives.

China set its yuan midpoint weaker than expected on Wednesday and the currency fell to a new seven-month trough of 7.1987 in offshore trade, while the offshore yuan crossed 7.2 to the dollar.

Aussie was further hit by fewer-than-expected central bank minutes on Tuesday following this month’s rate hike. It fell 0.9% overnight to last trade at $0.6786.

“The path of least resistance is falling further,” said Commonwealth Bank Australia strategist Joe Capurzo.

“The Aussie could drop below 0.6700 this week, especially if Powell is hawkish,” he said.

The New Zealand dollar pulled lower in sympathy, breaking below its 50-day moving average and settling just above its 200-day moving average at $0.6178.

The US dollar index was slightly firmer at 102.60. Bitcoin extended overnight gains to breach $29,000 for the first time in late May, following the launch of a new crypto exchange backed by Fidelity, Citadel Securities and Charles Schwab.

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Report by Tom Westbrook; Editing by Sam Holmes and Kim Coghill

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