The US dollar plunged on Wednesday after Jerome Powell's testimony in Congress.

During his testimony before the House Financial Services Committee, the Fed's chair said that the US economy was still a way off from the central bank's goal. The Committee would discuss the possibility of changes to asset purchases when it sees enough progress toward its goal. In fact, the head of the Federal Reserve said nothing new. His stance on monetary policy has been the same since the beginning of the year at least. Therefore, investors did not expect his rhetoric to change in July. Besides, Powell acknowledged that inflation has increased notably and will likely remain elevated in coming months.

As a result, the US dollar index that measures the value of USD relative to the value of the basket of six major currencies went down from its extreme points. The index plunged by 0.36% to 92.42 points. The indicator has fallen to the level of 92.80 points for the second time this month. Thus, the downward momentum to the lower boundary of the trading range at 89.20-89.60 may well begin.

Ahead of the chair's testimony in Congress, inflation statistics came out in the United States. According to the latest data, the inflation rate in the US has hit a fresh high unseen for over 13 years. At the same time, a sharp increase in inflation came after several years of balancing near alarmingly low levels amid a rapid recovery of the US economy. This in turn triggered a spike in the US dollar to the 3-months high. Apart from that, the issue of tapering by the world's central banks has once again become relevant.

Another reason for considering this possibility came after the announcement of the Canadian regulator's decision. The Bank of Canada plans to reduce weekly bond purchases from CA$3 billion to CA$2 billion. At the same time, the Reserve Bank of New Zealand announced a halt to its pandemic-induced bond purchase program, which could lead to an increase in interest rates as early as next month.