US dollar falls on inflation fears

The US dollar fell Wednesday after the Fed head refused to raise his tone on inflation despite a very solid US jobs number last week.

In a Tuesday session before the Economic Club of Washington, Powell explained that interest rates might be higher than expected if the US economy remains strong. Still, he reiterated that he feels disinflation is underway. The euro last traded up 0.15% at $1.075 after falling to $1.066 in the previous session, its lowest since January 9. It was well above September’s 20-year low of $0.954.

The US dollar index fell 0.181% to 103.121 on Wednesday after falling 0.34% in the previous session.

Sterling rose 0.38% to $1,208, recovering from Tuesday’s one-month high of $1,197.

The greenback went up after Friday’s jobs report, which showed 517,001 more jobs.

The US dollar index hit a one-month high of 103.96 as investors raised expectations about how much the Fed will need to raise interest rates.

Futures on Wednesday indicated that markets expect the Fed funds rate to reach more than 5.12% by June, with a range of 4.51% to 4.76%.

Meanwhile, based on prices in derivatives markets, traders expect the ECB to raise rates by the end of the summer to around 3.54% from 2.54% now.

How did other currencies face the US dollar

Elsewhere, the yen experienced a 0.291% rise. The currency traded at 130.68 yen to the dollar after rising 1.23% in the previous session.

Japan’s real wages rose for the first time in nine months thanks to strong temporary bonuses, data showed on Tuesday.

The kiwi gained 0.193% to $0.635, while the Aussie advanced 0.241% to $0.698 after gaining more than 1.3% on Tuesday.

German two-year yields, the most sensitive to changes in interest rates and inflation expectations, rose 11 basis points (bps) to 2.726% in early trade, the highest since January. The last was 2,694. %, marking an 8-bps increase per day.

Peripheral debt was more affected. Italian yields rose for a fourth consecutive day, rising 14 bps to 3.335%.