Dollar Strengthens Amid Fed Chair Powell's Cautious Tone on Rate Cuts

The U.S. dollar rebounded from a three-week low as Federal Reserve Chair Jerome Powell indicated that interest rate cuts were not imminent. Powell emphasized a need for greater confidence in hitting the 2% inflation target. The New Zealand dollar weakened on expectations of early policy easing.

The U.S. dollar saw an uptick on Wednesday, recovering from a three-week low, driven by Federal Reserve Chair Jerome Powell's cautious remarks on the timing of interest rate cuts. Powell stated that a rate reduction is contingent on gaining 'greater confidence' that inflation is headed towards the 2% target, while acknowledging a cooling job market. 'We now face two-sided risks' and can no longer focus solely on inflation, he remarked, highlighting the complexities faced by the Fed.

In response, the dollar index, which measures the greenback against six major currencies, remained steady at 105.14, showing a 0.1% rise from Tuesday. Traders have slightly adjusted their expectations, now placing 73% odds on a rate cut by September. Powell's non-committal stance has left markets in a cautious state.

Meanwhile, the New Zealand dollar weakened after its central bank expressed optimism about inflation targets, leading to bets on early policy easing. The kiwi fell 0.55% to $0.60915, distancing itself from Monday's three-week high. Across the Tasman, Australia's dollar surged against the New Zealand dollar but slightly eased against the U.S. dollar.

(With inputs from agencies.)