Dollar on the back foot after Powell’s comments, sterling surges

The dollar languished near three-week lows on Wednesday as a reaffirmation of a patient stance by Federal Reserve Chairman Jerome Powell and a newly resurgent pound kept U.S. currency bears in firm control.

The dollar index against a basket of six major currencies stood at 96.113 after shedding 0.4 percent overnight, when it stooped to 95.948, its lowest since Feb. 5.

Powell said on Tuesday that rising risks and recent soft data were unlikely to prevent solid growth for the U.S. economy this year, but that the Fed would remain “patient” on further interest rate hikes.

“The dollar’s fall was a little puzzling as Powell’s comments did not offer fresh insight. But the market was in a state where the dollar was sensitive to potential bearish factors, and the strong pound also weighed,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

Sterling had rallied on Tuesday after British Prime Minister Theresa May offered lawmakers the chance to vote on delaying Brexit, opening up the possibility of avoiding a chaotic no-deal departure from the European Union.

The pound was little changed at $1.1348 after surging more than 1 percent overnight to a five-month peak of $1.3288.

The Australian dollar was a shade lower at $0.7182, taking a breather after three straight days of gains.

The Aussie was hurt at the start of February after the Reserve Bank of Australia opened the door for an interest rate cut. But the currency has rebounded nearly 2 percent from this month’s low of $0.7054 plumbed on Feb. 12.

“Differences in monetary policies are less of a driver for currencies after the Fed shifted to a more dovish stance, prompting other central banks to follow. Risk appetite is now a key incentive, and currencies like the Aussie benefit from ‘risk on,'” said Yamamoto at Mizuho Securities.

Global equities have performed strongly this week – MSCI’s world stock index advanced to a five-month peak – on factors including ebbing U.S.-China trade tensions.

Equity markets performance and monetary policy might come into focus again, especially if investors sell down stocks heavily, analysts say.

“Equities may not be a concern when they are rising but if that were to change, comments by Fed board members pertaining to any additional policy steps will gather attention once more,” said Makoto Noji, chief currency and foreign bond strategist at SMBC Nikko Securities.

The dollar was little changed at 110.58 yen after shedding 0.4 percent the previous day. The greenback rose to a two-month high of 111.24 on Monday but has met firm technical resistance near the 200-day moving average 111.30.