Dollar Edges Lower as Investors Weigh Powell Testimony

The U.S. dollar slipped slightly on Friday, as investors remained cautious of the impact of tighter central bank policies around the world aimed at curbing soaring inflation.

As of 02:35 AM EST (0635 GMT), the U.S. dollar index – which tracks the greenback against a basket of six currencies – was marginally in the red, down 0.16% to 104.27. The index is trading below a two-decade peak of 105.79 reached on June 15 following a 75 basis point interest rate hike by the Federal Reserve.

The dollar is moving lower from that elevated level due to concerns that such aggressive monetary tightening may end up sparking a recession.

Fed Chair Jerome Powell warned in a testimony on Capitol Hill earlier this week that while it does not intend to cause a wider slowdown, “it’s certainly a possibility” despite his confidence that the U.S. economy will be able to withstand a sharp rise in borrowing costs. On Thursday, Powell added that the Fed has an “unconditional” commitment to fighting inflation.

The U.S. 10-year Treasury yield eased to 3.087% in the wake of Powell’s comments.

Meanwhile, GBP/USD remained firm, edging slightly higher by 0.05% to $1.22, following data on Friday that showed U.K. retail sales volumes declined by 0.5% in May, but were above analyst estimates.

Elsewhere, EUR/USD rose 0.19% to $1.05 ahead of statements from European Central Bank speakers later today and business confidence data in Germany.

USD/JPY was down 0.11% to trade at ¥134.79 after Japanese inflation came in above the Bank of Japan’s 2% target, casting some doubt on the bank’s loose monetary policy stance.