Equity markets have had a weak start to the year, falling due to bets that the Fed will tighten policy earlier than initially expected.
Investors are hoping that Powell will give clues as to the timing of monetary policy tightening when he answers questions from the Senate Banking Committee as he seeks a second four-year term as head of the Fed.
Powell will tell Congress that the bank will “prevent higher inflation from becoming entrenched”, pre-released comments show.
Joel Kruger, a currency strategist at LMAX Digital, said that investors will be listening for any information about the Fed’s attitude to inflation “because that’s the thing that nobody can really nail down and the Fed keeps maneuvering as far as the guidance goes”.
“If we continue to see downside pressure in stocks… not only do we have dollar demand on yield differentials but you also have dollar demand on a flight to safety,” he said.
Some of Wall Street’s biggest banks now expect four U.S. interest rate hikes this year, starting in March.
Meanwhile, the new head of Germany’s central bank said the euro zone’s inflation surge is not entirely temporary and that there could be higher-than-projected readings. His comments challenge the European Central Bank’s narrative on price pressures.
The euro hit a seven-week high versus the Swiss franc, with the pair changing hands around 1.0507.
This follows a rise in sight deposits held by the Swiss National Bank last week, which is a possible sign that the central bank is intervening to limit the franc’s strength.
“Outflows from the CHF may continue today if Powell sends hawkish signals to the market and UST yields rise again, assisting a more decisive break above 1.0500 in EUR/CHF,” wrote ING.
The Swiss franc is also acting as a Safe Haven to hedge political risk from Italy, ING said. The Italian Parliament will convene to choose a new president this month with Premier Mario Draghi seen as the leading candidate. Italian government bond yields rose as investors fretted about the country’s political stability.
EUR/CHF Long (Buy)
Enter at: 1.05273