Uncertainty has increased since a few sessions before Fed Chair Jerome Powell's testimony at the US Congress tonight and the ECB's rate announcement tomorrow.

Market volatility has decreased, and trading activity is quieter ahead of this week's key events. Traders temporarily pulled back ahead of Fed Chair Jerome Powell's testimony to the US Congress and the ECB's interest rate announcement. The US Dollar Index (DXY) stabilized at around 103.80s in Asian session trading on Wednesday (6/March).

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The US Dollar exchange rate has rallied around 2.4% this year thanks to the release of better-than-expected US economic data. However, the rally has stalled over the past few days due to a lack of further catalysts.

Last night's ISM Purchasing Managers' Index (PMI) survey results showed a slight slowdown in the US services industry in February 2024 despite its still expansionary status. The index score fell from 53.4 to 52.6, whereas the previous consensus only expected a slowdown to 53.0.

Market participants are now highlighting Fed Chair Jerome Powell's testimony, which will last two days starting later tonight. The provisional consensus expects Powell to reiterate that the Fed will wait for more data before cutting interest rates.

"A reaffirmation of this message is unlikely to change current market forecasts for an FOMC rate cut cycle starting in June, and will therefore have limited impact on the USD," said Carol Kong, currency strategist at Commonwealth Bank of Australia, as quoted from Reuters.

Consensus expects the ECB's interest rate announcement on Thursday to carry no significant changes. The ECB is almost certain to keep interest rates at the current 4% level. As such, markets focus more on the ECB statement to find clues as to when the European Central Bank will start lowering interest rates. Updates to the ECB's economic projections are also worth highlighting.

The euro slipped against various other majors amid this uncertainty, although yesterday's final PMI data release showed Eurozone business activity was slightly better than initially reported in the February 2024 period. EUR/USD was sluggish in the 1.0840s, EUR/GBP slipped below 0.8550, and EUR/JPY moved away from its highest level this year.