US Dollar Modestly Higher Early Tuesday Ahead of Powell Appearance

The US dollar improved modestly against its major trading partners early Tuesday as markets prepared for an appearance by Federal Reserve Chairman Jerome Powell at 9:00 a.m. ET. This comes after the release of the minutes from the Federal Open Market Committee’s December 13-14 meeting, which indicated no preference for a rate decrease in 2023 and a slower-than-expected increase in hourly earnings in December.

With investors eager to learn more about what lies ahead for monetary policy, today’s speech could be key to understanding how economic conditions will shape moving forward. Additionally, several other data releases are scheduled throughout the day that may provide further insight into market sentiment and performance, including weekly Redbook retail sales data at 8:55 a.m. ET, followed by Investors Business Daily’s monthly confidence survey results at 10:00 a.m. ET, along with wholesale inventory and sales numbers also released during this time frame.

Adding to this information is the news that small business confidence declined further according to the National Federation of Independent Business (NFIB) reading last month, largely due to high inflation levels squeezing profit margins across many industries and leaving companies struggling financially despite government aid programs put into place earlier on during the 2020 pandemic lockdown period. Given these latest developments, it remains unclear how exactly markets will react when Powell takes the center stage later today, but one thing is certain: all eyes are on him as he delivers his remarks given their potential impact on future policy decisions going forward.

USDEUR

The euro fell slightly to 1.0728 from its US close of 1.0733 on Monday but remained well above the 1.0686 level it was at earlier that morning. With no EU-level data being released Tuesday, attention is turning towards the European Central Bank meeting scheduled for February 2nd. ECB member Isabel Schnabel recently commented that rates will need to rise significantly for inflation to return up to the ECB’s target of 2%.

GBPUSD

The British pound sterling (GBP) fell to 1.2142 from 1.2185 at the Monday US close and was virtually unchanged from the 1.2143 level at the same time Monday morning, with no UK data or speeches on Tuesday’s schedule. The GBP is expected to remain relatively stable until February 2nd when there will be a Bank of England meeting that could potentially have an impact on its value in other currencies around the world.

USDJPY

The Japanese Yen rose to 132.1814 from 131.8835 at the Monday US close but was still below the 132.3457 level seen earlier that same morning. This came after data released overnight showed the Tokyo CPI rebounding in December and pushing up year-over-year rates for both total and core prices, while household spending declined in November. These figures have raised expectations ahead of the next Bank of Japan meeting on January 25th, which could see further monetary policy changes being discussed to stimulate economic growth within Japan’s economy.

USDCAD

The British pound to US dollar (GBPUSD) exchange rate rose to 1.3411 from 1.3391 at the Monday US close and was up even further from its level of 1.3377 earlier on Monday morning. With no Canadian data releases scheduled for Tuesday, traders will likely focus their attention on other market news and developments in anticipation of the Bank of Canada’s next meeting later this month on January 25th, which may provide direction for future GBPUSD movement going forward.