NEW YORK: The dollar fell from one-month highs on Tuesday after US Federal Reserve Chair Jerome Powell doubled down on statements last week that disinflation has started, saying he expects significant declines in inflation this year.
Powell did not revert to a hawkish stance despite last Friday's blockbuster US non-farm payrolls report, which led investors to believe the Fed is not likely to tighten more than what has been priced in by the market.
The greenback dropped across the board, led by losses versus the yen, Swiss franc, as well as the Australian and New Zealand dollar.
In a question-and-answer session at the Economic Club of Washington, the Fed chief did say the return to the US central bank's inflation goal of 2 percent would be a bumpy process, which would need further rate increases.
Powell, however, declined to equate the surprising strength in the job market shown in the January employment report with an expectation that interest rates would need to be higher than Fed officials estimated late last year.
Friday's US jobs report wrongfooted traders who were banking on an imminent pause in the Fed's rate-hike cycle, and gave the dollar a leg up.
The dollar index, which measures the performance of the greenback against a basket of six other currencies, fell to session lows after Powell's remarks. It was last down 0.2 percent at 103.39.
US interest-rate futures show that markets are expecting the Fed funds rate to peak just above 5.1 percent by June, compared with expectations of a peak below 5 percent prior to Friday's jobs report.
In afternoon trading, the euro was little changed against the dollar at $1.0719 after earlier falling to a five-week low of $1.0670.
The dollar dropped 1.2 percent versus the yen to 131.07 yen, after rising to a one-month peak on Monday. The yen was hit by a Nikkei report that said Japan's government has sounded out Bank of Japan Deputy Governor Masayoshi Amamiya to succeed incumbent Haruhiko Kuroda as central bank governor.
Amamiya is seen as more dovish than other contenders.
Sterling was up 0.1 percent against the dollar $1.2035 after tumbling to a one-month low of $1.1974 in the previous session.
Investors are looking for further commentary from central bankers this week following what was viewed as a dovish outcome of the Bank of England's meeting last week. The Australian dollar was up 0.9 percent at $0.6943 after having surged as much as 1 percent after the country's central bank raised its cash rate by 25 basis points and said more increases would be needed, a more hawkish policy tilt than many had expected.