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3 Minutes to Read (Reuters) – LONDON (Reuters) – The dollar sank on Wednesday after Federal Reserve Chair Jerome Powell indicated in prepared remarks to Congress that the economy was “still a ways off” from the levels the central bank desired before beginning to remove its stimulus assistance. In this illustration photo taken on June 22, 2017, British Pound Sterling and US Dollar bills can be seen. Thomas White/Thomas White/Thomas White/Thomas White/Thomas White/Thomas White/Thomas White/ His remarks came a day after data showing U.S. inflation at its highest level in more than 13 years pushed the dollar to three-month highs and heightened speculation about when the world’s central banks may begin to withdraw pandemic-era support. The Reserve Bank of New Zealand announced on Wednesday that it was ceasing bond purchases, heightening anticipation that rates might be raised as soon as August. The Bank of Canada is also likely to trim bond purchases on Wednesday, after reducing weekly purchases in April. Powell’s two-day hearing begins later on Wednesday, but his prepared remarks show the Fed is confident that current price gains, despite concerns about unmoored inflation, are linked to the economy’s recovery and would be temporary. He stated that the Fed would continue to provide assistance “until the recovery is complete.” Following Powell’s remarks, the dollar index fell further 0.4 percent to 92.41. It had previously risen to a high of 92.832, barely behind the 92.844 level touched for the first time since April 5 last week. It fell to $1.1823 against the euro after reaching its best level since April 5. “It’s not surprising, given Powell’s efforts to reflect the FOMC’s consensus and his repetition of what the FOMC has said. They stated at the last meeting that significant improvement is still required.” Thu Lan Nguyen, a Commerzbank strategist, said “We’re seeing a dollar correction, but I believe the disappointment will be short-lived.” Last month, the dollar gained over 3% after the Fed’s hawkish tilt caused markets to rethink when tapering and rate hikes would begin. After the inflation data, it rose 0.6 percent on Tuesday. According to data released on Wednesday, producer price inflation in the United States increased faster than predicted. The kiwi, meanwhile, jumped against the greenback after New Zealand’s central bank announced it will end a bond-buying program worth NZ$100 billion ($70 billion). It increased its gains after Powell’s remarks, closing 1.4 percent higher. Analysts have pushed out calls for a rate hike until August, putting New Zealand at the forefront of countries that are raising interest rates. The Australian dollar fell 0.7 percent versus the New Zealand dollar to NZ$1.0645, its lowest level since early June, due to the disparity in monetary policy outlooks. According to a Reuters survey of experts, the Bank of Canada (BoC) will cut asset purchases by C$1 billion per week later today. The Bank of Canada is expected to raise interest rates by 25 basis points to 0.50 percent in the fourth quarter of 2022, according to market expectations. The Canadian dollar strengthened by 0.5 percent against the US dollar. Saikat Chatterjee contributed additional reporting, while Mark Heinrich, Kirsten Donovan, and David Clarke edited the piece./nRead More

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