Dollar drifts as Powell comments bring September rate cut in focus

Rate Cuts:  The dollar hung around five-week lows on Tuesday as comments from Federal Reserve Chair Jerome Powell bolstered the case for a rate cut in September, while cryptocurrenices gained on rising odds of former President Donald Trump getting reelected.

Powell said on Monday the three U.S. inflation readings over the second quarter of this year "add somewhat to confidence" that the pace of price increases is returning to the Fed's target sustainably.

"We've had three better readings, and if you average them, that's a pretty good place," Powell said at an event at the Economic Club of Washington.

The comments, likely Powell's last until his press conference following the Fed's July 30-31 meeting, shifted rate cut expectations. Markets are now anticipating 68 basis points of easing this year, with a rate cut in September fully priced in, CME FedWatch tool showed.

The euro was a shade lower at $1.0893, while sterling last fetched $1.2967. The dollar index, which measures the U.S. unit versus six peers, was at 104.3, not far from the one month low of 104 it touched on Monday. "Despite dovish inclinations, Powell remained in a data-dependent mode which is warranted after the Fed has burnt its fingers with inflation running back higher in Q1 after a dovish pivot at the end of 2023," said Charu Chanana, head of currency strategy at Saxo.

"Markets may need to wait longer for the confirmation of their September rate cut hopes, and growth and labour data will be on the radar such as retail sales today."

U.S. retail sales for June due later in the day are expected to show a decline of 0.3 per cent on a month-on-month basis.

Meanwhile, the yen was weaker in early trading after touching a one-month high against the dollar at 157.165 per dollar on Monday. It was last at 158.54, with traders wary of further intervention from the Japanese authorities.

Traders suspect Tokyo intervened in the market in another effort to lift the Japanese currency last week after the cooler-than-expected U.S. inflation report. Data from Bank of Japan indicates that authorities may have spent up to 3.57 trillion yen to prop up the frail yen.

Markets will be eyeing fresh money markets data to gauge if Tokyo intervened on Friday as well.

In cryptocurrencies, bitcoin rose 1 per cent to trade just shy of the $65,000 mark, near its highest in a month. Ether was 1 per cent higher at $3,466 at a two-week peak.

Cryptocurrencies, along with shares of companies that could benefit from a Donald Trump presidency, jumped on Monday after an assassination attempt on the Republican candidate boosted expectations he would win the November election.

Trump presented himself as a champion for cryptocurrency during a San Francisco fundraiser in June, although he has not offered specifics on his proposed crypto policy.

"While the crypto scene still has SEC Chair Gary Gensler as a consideration on the regulatory side, potentially having the leader of the free world in your corner will always sit well with crypto heads," said Chris Weston, head of research at Pepperstone.

In other currencies, the Australian dollar was 0.16 per cent lower at $0.6749, creeping away from the six-month high it touched last week. The New Zealand dollar eased 0.17 per cent to $0.6064, hitting a two-week low.

(Reporting by Ankur Banerjee in Singapore; Editing by Christopher Cushing)