U.S. dollar weakens while traders await Powell’s speech

The dollar was subdued against other currencies on Wednesday as traders awaited Federal Reserve Chairman Jerome Powell’s speech. They speculated that the United States could one day adopt negative interest rates. The U.S. currency traded at 107.21 yen in Asian trade. So far, it changed insignificantly after slipping from Tuesday’s peak of 107.76, its highest point since April 24.

On Tuesday, U.S. President Donald Trump pushed the Federal Reserve to adopt negative interest rates once more. According to new data, U.S. consumer prices tumbled down by 0.8% in April. The economy seems to sink deeper into recession, fuelling the debate about policy responses.

Hiroyuki Ueno, the senior strategist at Sumitomo Mitsui Trust Asset Management, noted that he would advise against negative rates. According to him, Japan has already done that, but the perception here is that it wasn’t so good. Ueno is concerned that Trump is talking about them, as the past examples show that the Fed eventually does what Trump wants most of the time.

Powell plans to speak on current economic problems in a webcast hosted by the Peterson Institute for International Economics on Thursday. So far, Fed officials have declared that they do not see a need to cut interest rates below zero. Some market players expect Powell to stick to that script, but others aren’t so sure.

Kazushige Kaida, the head of FX sales at State Street Bank, thinks that Powell’s message will probably be something in the line that the Fed is focusing its efforts more on credit easing than negative rates.

What about riskier currencies?

The risk-sensitive currencies, such as the Australian dollar or New Zealand dollar, rallied recently. However, they slowed down as the possibility of the new coronavirus outbreaks dampened optimism.

The Aussie traded at $0.6476 at last, after hitting Monday’s one-week high of $0.6562. The New Zealand dollar, on the other hand, declined by 0.6% to $0.6036.

Meanwhile, the euro traded at $1.0848 after gaining about 0.4% in the previous session. And the British pound almost fell to its lowest levels in five weeks at $1.2269.