- The DXY slips near 97.35 on rising odds of a 25 bps interest rate hike in March.
- Powell’s testimony may solve the inflation puzzle and geopolitical crisis simultaneously.
- The Russia-Ukraine truce talks will be the key event to watch out for next.
The US dollar index (DXY) has plunged on Wednesday after hitting February 24 high around 97.74 as the market participants dump the greenback post the Federal Reserve (Fed) Jerome Powell’s testimony, which favoured a cautious hawkish stance.
Powell's comments in testimony to the US House of Representatives Financial Services Committee has favoured a 25 basis points (bps) interest rate hike. According to him, an interest rate hike by a quarter is appropriate in March’s monetary policy meeting to curb the soaring inflation. However, the former has not denied opting for a 50-bps rate hike, which was expected by the street earlier. Therefore, room for an aggressive tightening is still open but odds are very much low.
For now, uncertainty on aggressive tightening monetary policy has eased off and risk-impulse is on, which is favouring risk-sensitive assets.
Apart from Powell’s testimony, the mixed ADP (Auto Data Processing) Nonfarm Employment Change report has also hammered the greenback. The ADP Employment Change has landed at 475k, higher than the market consensus of 388k but lower than the prior print of 509k.
Meanwhile, the 10-year US Treasury yields have jumped near 2% as investors will shift their funds to safety on the new normal of an interest rate hike by the Fed.
On the Russia-Ukraine war docket, investors will focus on peace talks between the Kremlin and Kyiv. Any negative outcome of the negotiations meet will improve the appeal of safe-haven assets again and a fresh wave of risk-aversion may set further.