Marginal shift in Powell’s emphasis.
US ADP data recorded an increase in private-sector payrolls of 242,000 for February and above consensus forecasts of 200,000, but there was only a small upward revision to the January increase to 119,000 from the flash reading of 106,000. There was a notable decline in jobs in small companies.
The data overall was very solid but did not replicate the BLS non-farm payrolls data for January.
The annual increase in wages slowed slightly to a 12-month low of 7.2% from 7.3% the previous month.
The prepared text of Powell’s testimony was the same as on Tuesday which is the normal practice. Powell did, however, comment that no decision has been made on a potential 50 basis-point rate hike for the March policy meeting.
He insisted that the March decision is data dependent and will be guided by incoming data. In this context, he notes that jobs and CPI data will be important.
Despite a dip after Powell’s comments, markets still put the chances of a 50 basis-point rate hike for March at above 70%.
The dollar corrected slightly on the day, but still held the bulk of the gains seen on Tuesday amid expectations of a hawkish Fed with vulnerability in equities also tending to underpin the US currency.
Bank of England Monetary Policy Committee member Dhingra stated that many tightening effects are still to take hold and overtightening poses a more material risk at this point.
In this context, she stated that a prudent policy would be to hold policy steady. The stance was not surprising given that she has voted against rate increases at the last two monetary policy meetings.
The Bank of Canada held interest rates at 4.50% at the latest policy meeting, in line with consensus forecasts.
According to the bank, economic developments have been broadly in line with expectations with inflation expected to decline to 3% around 3% by the middle of the year. The bank, however, stated that it was ready to increase rates further if needed.
The Bank of Japan will announce its latest monetary policy decision on Friday.
Consensus forecasts are for no change, but this is the last meeting for Bank Governor Kuroda, maintaining some concerns over a surprise decision.
The Euro resisted further losses on Wednesday but struggled to make any headway. The dollar dipped after Powell stated that the March rate decision was still open, but underlying demand remained firm. Overall yield and Fed expectations continued to underpin the dollar. EUR/USD settled just below the 1.0550 level and edged marginally above this level on Thursday.
There was further choppy yen trading with further uncertainty over Bank of Japan policy. USD/JPY dipped to lows around 136.50 before a rebound to 137.25 and retreated again to 136.70 on Thursday.
The Swiss franc overall was little changed. EUR/CHF settled around 0.9925 with USD/CHF around 0.9400 after finding support below this level.
Sterling remained on the defensive with only a slight correction. BoE doubts continued to curb Sterling support after dovish Dhingra rhetoric, although the impact was limited. GBP/USD found support above 1.1800 and edged above 1.1850 on Thursday.
The Australian dollar secured only a weak recovery and hit 4-month lows below 0.6600 on Wednesday amid US dollar strength and fragile risk conditions. AUD/USD edged higher to 0.6610 on Thursday. The Canadian dollar edged lower after the Bank of Canada policy decision. USD/CAD pushed to fresh 4-month highs above the 1.3800 level before settling close to this level.