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European session review: USD slips ahead of Fed chief Powell congressional testimony

TimeCountryEventPeriodPrevious valueForecastActual
07:00GermanyTrade Balance (s.a.), blnJanuary23.321.527.5
09:30United KingdomPMI ConstructionFebruary48.849.249.7
10:00EurozoneRetail Sales (MoM)January-0.6%0.1%0.1%

USD edged lower against most of its major counterparts in the European session on Wednesday as investors waited for the Federal Reserve chairman Jerome Powell’s appearance before the lower chamber of Congress with his semi-annual report on the U.S. economy later in the day, hoping to get more clarity on the central bank’s policy plans.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, fell 0.16% from the previous close to 103.63.

The Fed’s chief Powell is set to testify before the House Financial Services Committee at 15:00 GMT. Tomorrow, he will report to the Senate Banking Committee. In the wake of the U.S. latest inflation data, markets do not expect a dovish shift in his rhetoric. Most likely, Powell will reiterate that he sees no necessity to hurry with interest rate cuts and emphasize the need for more evidence that inflation declining toward the Fed’s 2% target on a sustained basis before changes in policy stance.

Apart from Powell’s speech, investors will also pay attention to the ADP’s February National Employment Report, January Job Openings and Labor Turnover Survey (JOLTS), and the Fed’s March Beige Book. 

However, the most important event of the week is expected to be Friday’s release of the U.S. February employment situation report. Economists foresee it will show payrolls increased by 200,000 after a 353,000 climb in January,  an unemployment rate remained unchanged at 3.7%, and the pace of wage growth eased to 0.3% MoM from 0.6% MoM in January. 

A hotter-than-anticipated jobs data may again deter markes’ notion on the Fed's rate cut path. According to the CME FedWatch Tool, markets are now pricing in a 69.2% chance that the U.S. central bank will approve its first 25-basis-point rate decrease in June and an 87.0% probability of the move in July. Overall, at least four cuts in interest rates in the U.S. are predicted by markets for this year compared to the rate-setters’ projections of three.

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