Dollar Struggles as Powell Acknowledges sticking to the current plan

The financial market was on a wild ride on Wednesday as the Federal Reserve Chair Jerome Powell shared his thoughts on the economy and the future of interest rates last night. The U.S. dollar, which had seen a short-lived rally following Friday's impressive jobs report, took a step back as Powell indicated that interest rates may not rise much further. Despite this, Powell acknowledged that if the economic conditions remain strong, interest rates might need to move higher than expected. This caused a fluctuation in the currency market with the U.S. dollar struggling to recover its losses and the euro and sterling making modest gains.

Asia Markets React to Interest Rate Speculations

In Asia, the yen was last seen buying at 131.21 per dollar after surging 1.2% in the previous session. Data showed that Japanese real wages rose for the first time in nine months, offering a glimmer of hope to investors who are closely following wage trends in the country. Substantial pay growth in the spring labour talks is seen as an essential condition for the Bank of Japan (BOJ) to scale back its massive monetary stimulus. The Japanese Prime Minister Fumio Kishida emphasized the importance of strong communication skills and the ability to coordinate closely with global central banks for the new BOJ governor.

The kiwi slipped 0.02% to $0.6324, while the Aussie advanced 0.06% to $0.6964 after surging more than 1% on Tuesday. The Reserve Bank of Australia raised its cash rate by 25 basis points as expected, but indicated that further increases would be needed, indicating a more hawkish policy tilt than many had anticipated.

European Central Bank Makes Mixed Headlines on Interest Rates

The European Central Bank (ECB) also made headlines on Tuesday with mixed comments from its officials. Policymaker Francois Villeroy de Galhau stated that they were not very far from the peak of inflation, while policymaker Joachim Nagel reiterated that further, significant rate hikes will be needed. On the other hand, ECB Executive Board Member Isabel Schnabel adopted a neutral tone by saying that the ECB intends to raise key rates by 50 basis points (bps) in March while not committing to any additional policy action afterwards.

The EUR/USD pair showed a modest rebound early Wednesday after meeting support near 1.0700 on Tuesday. The pair's near-term technical outlook suggests that the bearish bias stays intact, but an extended recovery could be witnessed if sellers fail to defend 1.0760.

Eventful Day Ahead for Financial Market

Wednesday is shaping up to be an eventful day for the markets, with a variety of economic data and central bank speeches to keep investors on their toes.

The eurozone's economic performance will also come under scrutiny, with the French non-farm payrolls for the fourth quarter of 2022 due for release. The actual data showed a 0.0% increase quarter on quarter, which was below the forecast of 0.2%.

Speeches by central bank officials will also provide valuable insight into their views on the economy. The ECB's Elderson and the German Buba's Balz will both take to the stage to share their thoughts, while the FOMC member Williams and Fed's Waller will also be speaking.

In Poland, the interest rate decision will be closely watched, with the rate expected to hold steady at 6.75%. Meanwhile, the Russian economy will be in focus, with the release of inflation, retail sales, and unemployment rate data. The actual data showed a YoY rise of 11.5% in the Consumer Price Index, which was in line with the forecast of 11.5%. The monthly change came in at 0.7%, slightly below the expected 0.8%. The retail sales YoY decline was worse than forecast, with the actual data showing a 9.5% drop compared to the expected decrease of 7.9%. The unemployment rate was reported at 4.0%, which was higher than the forecast of 3.7%.

In the energy market, the Crude Oil Inventories report will be released at 17:30 GMT, providing an update on the supply and demand dynamics in the oil market. The market is expecting to see a decline in inventories, with a forecast of 2.457 million barrels, compared to 4.140 million in the previous release.