Dollar index close to 7-month lows.
The US NFIB small-business confidence index dipped to 89.8 for December from 91.9 which was below consensus forecasts of 91.5 and the lowest reading for six months.
Although there were further concerns over inflation pressures, fewer companies reported that selling prices had increased and there was a slight easing of supply issues in the labour market.
Fed Governor Bowman stated that inflation is much too high and committed to taking further action while she was looking for compelling signs that inflation has peaked. She added that the Fed needs to hold policy at a sufficiently restrictive level for some time.
Fed Chair Powell limited his comments to stating that the central bank needed to stick to its mandate and there were no direct comments on monetary policy.
There had been some concerns that Powell would look to push back against market expectations and reiterate a hawkish policy stance. The lack of commentary helped underpin risk appetite and curbed dollar demand.
Japanese Finance Ministry official Saito stated that interest rates will not remain low indefinitely, reinforcing market expectations that there will be at least a limited policy shift once a new bank Governor is in place.
The dollar attempted to rally at times on Tuesday, but overall remained on the defensive amid expectations of a turn in Federal Reserve monetary policy and a further decline in inflation in the data this week.
The monthly Australian inflation rate increased to 7.3% for November from 6.9% previously and above consensus forecasts of 7.2%.
The Euro drifted lower ahead of Tuesday’s New York open, but held above the 1.0700 level against the dollar. Overall Euro sentiment remained solid on the day as energy prices remained lower. ECB council member Centeno reiterated that the rate-hiking cycle was close to an end. EUR/USD was capped just above 1.0750 and traded around this level on Wednesday.
There was further choppy dollar trading against the yen with net dollar support from higher bond yields. Speculation over a Bank of Japan policy shift this year underpinned the yen. USD/JPY settled above 132.00, but below intra-day highs of 132.50.
The Swiss franc edges lower amid subdued demand for defensive assets. EUR/CHF traded just above 0.9900 with USD/CHF around 0.9210.
Sterling edged lower amid a lack of domestic confidence, but did show some resilience. GBP/USD found support at 1.2110 and rallied to 1.2170 on Wednesday.
Commodity currencies held in tight ranges with a slight negative bias. AUD/USD was unable to hold above 0.6900 on Tuesday, but traded above this level on Wednesday after the inflation data. USD/CAD advanced to highs near 1.3450 before fading slightly to 1.3425.