The US dollar stabilized in early European trading on Wednesday, hovering near a three-week low after Federal Reserve Chairman Jerome Powell’s first of two speeches on Capitol Hill, while the euro steadied amid ongoing political uncertainty in France.

Dollar Awaits Powell’s Second Speech

The dollar traded in a tight range on Wednesday after hearing Jerome Powell’s testimony before Congress, in which the Federal Reserve chairman pointed to the recent cooling of the labor market as an increasingly important factor in deciding when the central bank will start cutting interest rates.

Powell also remarked that a rate cut is not ideal until the Fed has “greater confidence” that inflation is on course to meet its 2% target.

By mentioning that high inflation was not the only risk facing the Fed, the central bank chairman could be seen as setting the stage for a rate cut most likely in September.

Powell returns to Washington on Wednesday, and traders will be looking for more precision in his comments ahead of Thursday’s vital consumer inflation data.

Political deadlock in France

The EUR/USD rose 0.1% to 1.0819, continuing below Monday’s near one-month high of 1.0845 in the wake of France’s parliamentary runoff election.

The election result turned out to be an unexpected victory for the left-wing alliance, after the far-right National Rally won in the first round.

GBP/USD rose 0.1 percent to 1.2801, not far from Monday’s 1.2845, its highest level since June 12, following last week’s general election on Thursday.

Yen loses ground after inflation in the country

USD/JPY rose 0.2% to 161.56, again approaching 38-year highs.

Japan’s producer price index inflation data revealed that, while factory inflation picked up in June, it remains relatively weak, raising doubts about whether the Bank of Japan will be able to tighten monetary policy further.

The USD/CNY advanced 0.1% to 7.2760 and the yuan weakened after Chinese CPI inflation slowed in June, reflecting weak confidence in consumer spending.

The country’s PPI inflation slowed to its slowest pace since February 2023, but still showed that Chinese disinflation remained in force.

NZD/USD declined 0.8% to 0.6072 after the RBNZ held rates steady and showed progress in bringing inflation back to its annual range of 1-3%. The central bank also signaled that it could ease policy if inflation continues to fall.