USD slipped against most of its major counterparts in the European session on Tuesday, as investors awaited the Federal Reserve Chairman Jerome Powell’s testimony later in the day, hoping to get more clues on the Fed's agenda for policy normalization.
The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, edged down 0.07% to 95.92.
The Fed’s Chair Jerome Powell is scheduled to testify before the U.S. Senate Banking Committee as part of his renomination process at 15:00 GMT. In the prepared remarks of his speech, which were released this morning, Jerome Powell stated that the Fed will use all its tools “to prevent higher inflation from becoming entrenched” as well as to support the jobs market and the economy overall.
The U.S. inflation report for December is set to be released tomorrow. Economists’ projections suggest that it will show a 7.0 percent y/y surge in headline CPI and a 5.4 percent y/y increase in core CPI. If realized, both projections would be higher than their November readings, which hit levels unseen in decades, and would guarantee a March interest rate liftoff by the U.S. central bank.
The minutes of the December Fed meeting, which was released last Wednesday, revealed a shift towards a more aggressive stance on policy normalization, as policymakers revised their outlooks for the U.S. economy, labor market, and price pressures. The Fed’s officials noted that a faster pace of policy rate normalization could be warranted, given a stronger economic outlook, higher inflation, and a larger balance sheet.