European session review: USD edges lower as focus turns to Wednesday’s Fed chief Powell testimony, Friday’s jobs data

USD slipped against most of its major rivals in the European session on Monday as investors waited for several crucial events later this week, including the Federal Reserve chairman Jerome Powell’s congressional testimony and the release of the U.S. February employment situation report, which could prompt investors to rethink their 2024 rate-cut view.

The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, decreased 0.04% from the previous close to 103.82.

The Fed’s chief Powell will deliver his semi-annual testimony to the House Financial Services and Senate Banking committees on Wednesday and Thursday, respectively. In the wake of the U.S. latest inflation data, markets do not expect a dovish shift in his rhetoric. Most likely, Powell will reiterate his wait-and-see approach to interest rate cuts, emphasising the necessity of more evidence that inflation declining toward the Fed’s 2% target on a sustained basis.

On Friday, investors will receive a much-anticipated jobs report for February. Economists expect it will show payrolls increased by 200,000 after a 353,000 climb in January,  an unemployment rate remained unchanged at 3.7%, and the pace of wage growth eased to 0.3% MoM from 0.6% MoM in January. 

A hotter-than-expected jobs data may deter markes’ view on the Fed's rate cut path. According to the CME FedWatch Tool, markets are now pricing in a 73.7% probability that the U.S. central bank will decrease its rates by 25 basis points in June to 5.00-5.25% and a 52.5% chance of a follow-on move in July. Overall, at least four cuts in the Fed interest rates are forecast for this year compared to the rate-setters’ projections of three.