Dollar Strengthens Amidst Powell's Cautious Stance on Rate Cuts

The dollar gains traction after Federal Reserve Chair Jerome Powell's cautious remarks on interest rate cuts. The New Zealand dollar also rises, influenced by the central bank's upcoming rate decision. The dollar index remains stable against major currencies, with financial markets closely awaiting further economic data and policy signals.

The dollar was on the rise Wednesday, rebounding from a three-week low after Federal Reserve Chair Jerome Powell took a cautious approach on the timeline for interest rate cuts.

The New Zealand dollar also inched higher as traders awaited the central bank's rate decision, keen for clues on potential policy easing. Powell's testimony to Congress highlighted that a rate cut requires "greater confidence" that inflation is nearing the 2% target.

Despite acknowledging a cooling job market and "two-sided risks," Powell underscored that the focus can't solely be on inflation. The dollar index, which pits the U.S. currency against six major peers, remained flat at 105.11 in early Asian trading after rising 0.1% Tuesday. Earlier, it had dipped to its lowest since June 13 due to weak payroll figures.

Trader expectations for a rate cut by September were at 73%, down from 76% a day prior, with a second cut likely by December. "Powell was cautious not to pre-commit to a set path, as data flow could easily disrupt plans," noted Taylor Nugent, senior markets economist at National Australia Bank.

Although markets eye September as a probable start for cuts, three CPI reports and two payroll updates could delay proceedings. Powell's testimony continues before the House on Wednesday, with June's CPI data releasing Thursday.

The dollar climbed 0.07% to 161.41 yen, while the euro was steady at $1.0815. Australia's dollar saw minimal changes, keeping close to its six-month peak, and New Zealand's kiwi rose 0.1%, maintaining its position after pulling back from a three-week high.

The Reserve Bank of New Zealand is expected to hold rates steady in its upcoming policy announcement. Nonetheless, it continues to evaluate if inflation is under control, even hinting at a potential rate hike last meeting. "Should the RBNZ note faster-than-expected inflation easing, markets might fully price in the first rate cut by October, from November currently," said Kristina Clifton, a senior economist at Commonwealth Bank of Australia.

(With inputs from agencies.)