U.S dollar index rise from three-week lows amid a less dovish Fed 

Investors processed the less-than-dovish remarks made by Federal Reserve Chair Jerome Powell during his appearance before the US Congress, and the US dollar continued to rise from its three-week lows. While EUR/USD hovered near the $1.08 handle, GBP/USD dropped below $1.28 again.

The Japanese yen had the largest gains, with the USD/JPY slowly approaching new 38-year highs. The Federal Reserve Chair, Jerome Powell, will make his semi-annual Capitol Hill appearance on Wednesday to testify before the House of Representatives.  The Fed chief testimony before the Senate Banking Committee on Tuesday stated that the recent slowdown in the job market will progressively affect when the U.S. central bank lowers interest rates.   

Even if they saw the Fed chairman’s comments, setting the stage for a September decline and admitting that other factors also affect monetary policy, market players will watch for additional nuance in his remarks later in the day. 

Powell told senators during the first day of his semiannual hearing that the shrinking labor market is a bigger threat than inflation. Powell also highlighted the most recent employment data sent a “pretty clear signal” of a cooling job market when asked when the Fed will lower interest rates, but he would not give a certain date. 

Investors will remain optimistic that expectations for rate cuts are moving in the right direction and be prepared to set aside any inadvertent spike in inflation or less-than-perfect inflation statistics. 

With strong selling of 3-year notes, the US 2-year yield continued to rise northward following last Friday’s disappointing jobs news rather than declining further. Not only did the 10-year yield stabilize at roughly 4.30%, but the US dollar did not depreciate. 

The euro started to weaken after Fed Chair Powell’s congressional speech, European rates trending higher, and market indices falling. Following a session low of $1.08, the EUR/USD made some progress. Meanwhile, the CAC 40 continued to decline for the fourth straight session on Tuesday, falling 1.6% more—the highest in a single day in over three weeks—as investor sentiment continues to be badly impacted by the prospect of a political impasse.