U.S. stock futures extended last week’s gains by another 0.20% on mid-Tuesday as investors bets that Federal Reserve Chair Jerome Powell will give a less hawkish tone during a congressional testimony later today and Wednesday.
The well-expected two-day testimony is set to begin before the Senate on Tuesday and the House of Representatives on Wednesday in Washington, with Powell presenting the central bank’s semi-annual monetary policy report.
Powell would likely express heightened concern about the persistent inflation and the resilient U.S. economy, and he might give some clues about the future interest rate increases ahead of the Fed’s March policy meeting, and the path forward for monetary tightening.
According to Reuters, Fed funds futures traders are pricing in a 76% probability the Fed will raise rates by 25 basis points at its March 22 meeting. They also expect interest rates to peak at 5.48% in September and still be above 5% at the end of 2022.
In other words, investors are afraid that the Federal Reserve will push interest rates higher than previously expected and keep them elevated for longer to curb inflation.
The Fed slowed the pace of rate hikes to 25 basis points at its last meeting on Feb. 1, after a 50-basis point increase in December that came in the wake of four consecutive 75 basis-point increases.
The DXY-U.S. dollar index, which measures it against six major rivals, fell as low as 104.170 overnight, before rebounding to nearly 104.50 a few hours before the kick-off of the testimony.
The weaker dollar gave the opportunity to major risk-sensitive currencies to rebound, with Euro recovering toward the $1.07 key resistance level, and the Pound Sterling jumping as high as $1.2050.