Dollar ends slightly lower despite initial strong rebound on Fed's hawkish comments

The greenback rebounded strongly in New York morning after hawkish comments from Federal Reserve Chairman Powell triggered broad-based buying in usd before easing while safe-haven Japanese yen and Swiss franc rallied on global outlook risks.  

Reuters reported the higher prices seen today are generally related to the pandemic, but some price increases are also being seen more broadly and the risk of higher inflation has increased, Federal Reserve Chair Jerome Powell said on Tuesday.     "Generally, the higher prices we're seeing are related to the supply and demand imbalances that can be traced directly back to the pandemic and the reopening of the economy," Powell said during a hearing with the U.S. Senate Banking Committee. "But it's also the case that price increases have spread much more broadly ... and I think the risk of higher inflation has increased."  

Further news from Reuters, the head of drugmaker Moderna said COVID-19 vaccines are unlikely to be as effective against the Omicron variant of the coronavirus as they have been against the Delta variant.    "There is no world, I think, where (the effectiveness) is the same level . . . we had with Delta," Moderna Chief Executive Stephane Bancel told the Financial Times in an interview.    "I think it's going to be a material drop. I just don't know how much because we need to wait for the data. But all the scientists I've talked to . . . are like 'this is not going to be good'."  

Versus the Japanese yen, dollar met renewed selling at 113.89 in Asian morning and tumbled to 112.69 in European morning on active safe-haven jpy buying following Moderna's news. Despite ratcheting lower to a 6-week low of 112.54 in New York, the pair pared intra-day gains and staged a strong rebound to 113.70 on Fed Powell's hawkish comments before retreating to 113.01.  

The single currency traded with firm bias in Asia and rallied to 1.1372 in European morning on usd's weakness vs G4 currencies following Moderna's news. The pair then ratcheted higher to an intra-day high at 1.1382 in New York morning due to cross-buying of euro especially vs sterling. Later, the pair erased intra-day gains and tumbled to session lows of 1.1236 on broad-based usd buying before staging a short-covering rebound to 1.1345.  

The British pound retreated from 1.3329 in Asian morning to 1.3308 ahead of European open. Cable then found renewed buying there and rallied in tandem with euro to an intra-day high at 1.3371 in European morning. However, the pair then erased its gains and fell to an 11-month trough of 1.3195 in New York morning following Fed Powell's hawkish comments before rebounding to 1.3309.  
Data to be released on Wednesday:  

Australia AIG manufacturing index, manufacturing PMI, GDP, New Zealand building permits, U.K. BRC shop price index, nationwide house price, Markit manufacturing PMI, Japan Jibun bank manufacturing PMI, China caixin manufacturing PMI, Germany retail sales, Markit manufacturing PMI, Swiss CPI, manufacturing PMI, France Markit manufacturing PMI, Italy Markit manufacturing PMI, EU Markit manufacturing PMI, U.S. MBA mortgage application, ADP employment change, Markit manufacturing PMI, construction spending, ISM manufacturing PMI, Canada building permits and Markit manufacturing PMI.  

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