Dollar fell in European trade against a basket of major rivals off three-month highs and on track for the first loss in three days on active profit-taking. 

Investors continue to shun new positions ahead of the US payrolls report on Friday, crucial for gauging the path forward for monetary policies. 

The Index

The dollar index fell 0.4% to 105.23, with a session-high at 105.73, after rising 0.1% yesterday, the second profit in a row, hitting three-month highs at 105.88 following strong US private sector employment data. 

Powell 

During the second part of his Congressional testimony, Fed Chair Jerome Powell reiterated his message on raising interest rates , maybe even faster than before, but it depends on upcoming data. 

Fed Rates

Following Powell's remarks, odds for a 0.5% rate hike in March rallied from 69% to 78%, while estimates for a 0.25% rate hike tumbled to 22%.

Labor Data

Following Fed Chair Powell's bullish remarks, eyes are now fixated on the US payrolls report awaited tomorrow. 

Recent US private sector data showed the economy added 242 thousand new jobs in February, beating estimates of 197 thousand, with January's reading revised to show a 119 thousand increase. 

The data showed that job openings were less than expected in January at 10.82 million, missing estimates of 10.58 million. 

Later today, US unemployment claims are expected to show an increase of 195 thousand in the week ending March 4 from 190 thousand in the previous reading. 

Analysis

Analysts now ponder whether the strong performance for the US economy in January is transient or permanent, which will decide the path forward for policies.

Upcoming labor data on Friday will be pretty crucial to clarify the issue. 

Euro rose in European trade above two-month lows against  dollar on track for the first profit in three days after ECB President Christine Lagarde vowed to combat spiking inflation in the euro zone. 

The dollar stalled on profit-taking ahead of important US labor data on Friday to provide clues for the health of the economy.

EUR/USD rose 0.15% to 1.0560, with a session-low at 1.0536, after losing 0.1% yesterday, marking two-month lows at 1.0525 after Fed Chair Jerome Powell's aggressive remarks and strong US labor sector data.

Lagarde

ECB President Christine Lagarde vowed to do everything required to bring balance back to prices in the euro zone during a conference held by the World Trade Organization in Geneve. 

Lagarde vowed to restore prices to normality , as the ECB's main job is to bring back high inflation to normal 2% target throughout the euro zone. 

She asserted the likelihood of a 0.5% rate hike by the ECB in March ,with other important steps later on to control prices. 

Such sentiment was corroborated by Dutch Central Bank President, who expected multiple more 0.5% rate hikes later on.

The Dollar

The dollar index fell 0.1% on Thursday off three-month highs on track for the first loss in three sessions against a basket of major rivals. 

Investors await important US data later on to gauge the pace of the Fed's policy tightening.

Recent private sector employment data showed the US economy added more jobs than expected in February, with now markets await the all-important payrolls report on Friday.

Odds for a 0.5% rate hike by the Fed in March surged from 28% to 78% following Fed Chair Jerome Powell's bullish Congressional testimony.

The Energy Information Administration reported a drop of 1.7 million barrels in US crude stocks last week to 478.5 million barrels, while analysts expected a buildup of 700 thousand barrels.

Gasoline stocks fell 1.1 million barrels to 238.1 million barrels, while distillate stocks rose 100 thousand barrels to 122.3 million barrels. 

Euro fell in European trade for a second session against dollar to two-month lows ahead of ECB President Christine Lagarde's speech, which might provide clues on the future path of policies. 

The dollar hit three-month highs after Fed Chair Jerome Powell's testimony ahead of Congress, which was more bullish than expected, boosting interest rate pricing for the March meeting. 

EUR/USD fell 0.2% to 1.0525, the lowest since January 6, with a session-high at 1.0553, after losing 1.2% yesterday, the first loss in thee days, and the largest since last September. 

Euro marked two-week highs earlier yesterday at $1.0695 following bullish remarks by ECB officials before gains were quickly squashed by Powell's remarks. 

Lagarde

ECB President Christine Lagarde is due to participate in a moderated discussion at International Women's Day hosted by the World Trade Organization, in Geneva;

Christine Lagarde said it's very probably that the ECB will increase interest rates by 50 basis points in March.

She said the bank will continue to take aggressive measures to bring inflation back to the 2% target.

The Dollar

The dollar index rose 0.2% on Wednesday for the second session, hitting 2023 highs at 105.88, the highest since early December against a basket of major rivals. 

Fed Chair Powell also said the Fed hasn't won its battle against inflation yet, which remains considerably higher than 2%.

He noted that inflation calmed down in January with some signals of weakening in services except housing, possibly because of the warmer climate.

However, a full review of the last quarter shows that inflationary pressures remain rather higher than expected in previous meetings.

Fed Rates

Pricing for a 0.5% rate hike at the Fed March meeting surged from 28% to 69%, with pricing for a 0.25% rate hike down from 72% to 31%. 

Estimates

We expect euro to move in negative space for the time being, hitting successive 2023 lows and potentially giving up 1.05 amid concerns about a widening policy gap between the US and Europe.