Dollar mixed after Powell pushes back against March rate cut

NEW YORK: The dollar was steady against the euro on Thursday and fell against the yen after Federal Reserve Chair Jerome Powell pushed back against bets of early US rate cuts.

Sterling cut losses after the Bank of England said it would need more evidence of slowing inflation before easing.

Powell said on Wednesday that rates had peaked and would move lower in coming months, with inflation continuing to fall and an expectation of sustained job and economic growth.

But he declined to declare victory in the US central bank’s two-year inflation fight, vouch that it had achieved a sought-after “soft landing” for the economy or promise that rate cuts would come as soon as the Fed’s March 19-20 meeting, as investors had hoped in the run-up to this week’s policy decision.

“The common theme that’s emerging from central bankers is a reluctance to indulge the market’s pricing on rate cuts,” said Adam Button, chief currency analyst at ForexLive in Toronto.

Investors cut bets on a March rate cut after Powell said that such a move is “not the base case.” Traders are now pricing in a 38% probability of a March rate cut, and a 97% chance of a rate reduction by May, according to the CME Group’s FedWatch Tool.

The dollar index was last down 0.10% at 103.51.

The greenback has been pulled lower despite Powell’s relatively hawkish tone by tumbling Treasury yields on renewed jitters over US regional banks. Regional US bank stocks sank on Wednesday after New York Community Bancorp cut its dividend and posted a surprise loss, renewing fears over the health of similar lenders.

Those concerns may have also boosted the safe haven Japanese yen. The greenback lost 0.21% against the Japanese currency to last trade at 146.6 yen.

The next major US economic release will be Friday’s jobs report for January, which is expected to show that employers added 180,000 jobs during the month.

Data on Thursday showed that US worker productivity grew faster than expected in the fourth quarter, while initial claims for state unemployment benefits increased in the latest week.

The Bank of England, meanwhile, adopted a slightly more hawkish tone on Thursday, even as it dropped its warning that “further tightening” would be required if more persistent inflation pressure emerged.

BoE Governor Andrew Bailey said that “we need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates.”

“While the ECB and the Fed are hinting at rate cuts, the Bank of England’s reticence for these discussions continues to make it stand out as an outlier,” said Kyle Chapman, FX market analyst at Ballinger & Co.

Sterling was last down 0.2% on the day at $1.26640.

The euro was steady on the day at $1.08195, after earlier dropping to $1.07800, the lowest since Dec. 13. The single currency has been hurt by expectations that the US economy will hold up better than that of the euro zone.