2021.07.1416:09:00UTC+00U.S. Dollar Drops As Fed Chair Powell Says Labor Market Recovery "still A Ways Off"

The U.S. dollar slipped against its major opponents in the European session on Wednesday, as expectations over a faster monetary policy tightening receded after Federal Reserve Chair Jerome Powell remarked that "substantial further progress" towards employment and price stability goals is "still a ways off."

The Fed will ensure that monetary policy will continue to deliver powerful support to the economy until the recovery is complete, Powell said in his prepared remarks for testimony before the House Financial Services Committee.

Powell acknowledged that the labor market conditions have continued to improve, but there is still a long way to go.

The spike in inflation reflected temporary factors such as base effects, as the sharp pandemic-related price declines from last spring drop out of the 12-month calculation.

The Fed chief noted that policymakers will continue to discuss their timeline to reduce the asset purchase program at coming meetings.

"While reaching the standard of "substantial further progress" is still a ways off, participants expect that progress will continue."

Powell reiterated that the central bank will provide advance notice before announcing any decision to make changes to its bond purchases.

Data from the Labor Department showed that U.S. producer prices jumped much more than expected in the month of June.

The Labor Department said its producer price index for final demand surged up by 1.0 percent in June after climbing by 0.8 percent in May. Economists had expected producer prices to rise by 0.6 percent.

The greenback showed mixed performance against its major peers in the Asian session. While it held steady against the franc and the euro, it fell against the pound. Versus the yen, it climbed.

The greenback depreciated to 1.3892 against the pound, down by 0.7 percent from Tuesday's close of 1.3801. Immediate support for the dollar is likely seen around the 1.40 level.

Data from the Office for National Statistics showed that UK consumer prices accelerated more-than-expected in June.

Inflation rose to 2.5 percent in June from 2.1 percent in May. The rate was forecast to climb to 2.2 percent.

After a 1-week rise to 110.70 at 8:30 pm ET, the greenback dropped 0.6 percent to a 2-day low of 110.09 against the yen. The pair was worth 110.62 when it ended deals on Tuesday. Should the greenback falls further, it is likely to face support around the 108.00 region.

Data from the Ministry of Economy, Trade and Industry showed that Japan's industrial production declined more than estimated in May.

Industrial production fell a seasonally adjusted 6.5 percent month-on-month in May. In the initial estimate, output decreased 5.9 percent.

The greenback lost 0.3 percent to 0.9162 against the franc. At Tuesday's close, the pair was valued at 0.9185. The greenback is seen facing support around the 0.90 level.

The greenback was 0.4 percent lower against the euro, at 1.1828. The pair had closed Tuesday's deals at 1.1776. Further drop in the currency may challenge support around the 1.20 region.

Data from Eurostat showed that Eurozone industrial production dropped more than expected in May.

Industrial output fell 1 percent on a monthly basis, reversing a revised 0.6 percent rise in April. The pace of decline exceeded the economists' forecast of -0.2 percent.

The greenback edged lower to 1.2451 against the loonie from yesterday's close of 1.2513. The greenback is likely to challenge support around the 1.21 region, if it drops again.

The greenback pulled back from a prior high of 0.7431 against the aussie, with the pair trading at 0.7486. The aussie-greenback pair was worth 0.7444 at Tuesday's close. Continuation of the greenback's downtrend may lead it to a support around the 0.77 region.

The greenback slipped against the kiwi, as the latter jumped after New Zealand's central bank announced a reduction of monetary stimulus by ending the Large Scale Asset Purchase programme. The greenback touched a 1-week low of 0.7044 against the kiwi, down from yesterday's closing quote of 0.6942. Next key support for the greenback is likely seen around the 0.72 level.

New Zealand central bank decided to reduce the current stimulatory level of monetary settings.

The Monetary Policy Committee of the Reserve Bank of New Zealand said that it will halt additional asset purchases under the Large Scale Asset Purchase programme by July 23.

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