Markets on Defense

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Hawkish Powell keeps markets on defense

The week's main attraction, Fed Chair Jerome Powell's testimony before the U.S. House Financial Services Committee, came and went without rearranging the pieces on the table much.

The Japanese yen looked a bit steadier by late morning on Wednesday but that was after the dollar advanced to a seven-month high following publication of Powell's embargoed remarks that the central bank's effort to bring inflation back down to 2% was "far from over."

During the grilling by committee members, Powell pushed back on the description of last week's decision to hold its benchmark rate at 5-5.25% as a "pause" from the aggressive 500 basis-point tightening since last March, saying two more 25 bp rate hikes by year end was "a pretty good guess."

Clouding the picture though, Atlanta Federal Reserve President Raphael Bostic said in written remarks and an interview on Yahoo Finance that the Fed should not raise rates further or it would risk "needlessly" sapping the strength of the U.S. economy.

So, that left traders expecting rate hikes to resume at the Fed's July meeting, even as the futures market reflects doubts that the Fed will deliver more increases beyond that.

The Japanese currency remained under pressure in U.S. dealings after Bank of Japan Governor Kazuo Ueda on Wednesday reiterated the central bank's dovish stance to maintain its ultra-loose monetary policy.

The dollar firmed 0.3% on the day, wrapping up around 141.805 yen, though it pulled back from its highest print since Nov. 11 at 142.39, hit before Powell's live testimony began.

Meanwhile, the offshore yuan having weakened above 7.20 per dollar for the first time since late November overnight, departed Wednesday's U.S. FX session at 7.1779.

The Australian dollar was up 0.15% at $0.67975, set to snap a three-day losing streak following Tuesday's release of the minutes of the Reserve Bank of Australia's June policy meeting, which lacked guidance on further rate hikes. Markets took this as a dovish sign.

U.S. Treasury yields held to pretty narrow ranges and, with Powell leaning hawkish but not deviating much from last week's FOMC message, the three major U.S. stock indexes fell, for the third straight session.