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Dollar Loses Ground After Powell's Remarks Hint At Rate Cuts

The U.S. dollar drifted lower against most major currencies on Wednesday, dragged down by Federal Reserve Chairman Jerome Powell's testimony before the House Financial Services Committee that reignited optimism about a potential rate cut by the Fed later this month.

On the first day of the much awaited two-day testimony before the Congress, Powell said that crosscurrents, such as trade tensions and concerns about global growth, have continued to weigh on the U.S. economic outlook since the central bank's June meeting.

The Fed chief pointed out that increased uncertainties about the economic outlook and muted inflation pressures led the central bank to pledge after the June meeting to "act as appropriate to sustain the expansion."

He noted noted that many meeting participants saw that the case for a somewhat more accommodative monetary policy had already strengthened.

"Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook," Powell said in his prepared remarks.

Meanwhile, James Bullard, the President of the Federal Reserve Bank of St. Louis, said that he would insist on a 25-basis points cut in interest rate at the monetary policy meeting later this month.

According to the minutes of the FOMC's last meeting, Bullard was the one to vote against the decision to keep rates unchanged and argued for a rate cut as an insurance measure.

The minutes, released today, also reveal that the participants agreed that "the risks and uncertainties surrounding their outlooks, particularly those related to the global economic outlook, had intensified in recent weeks."

The dollar index dropped to a low of 97.04, losing nearly 0.5%, before edging up slightly to 97.12.

Against the euro, the dollar eased to $1.1251, giving up nearly 0.4%. The greenback dropped to 1.1265 at one stage.

The pound sterling strengthened to $1.2504, gaining about 0.34%. Data from the Office for National Statistics showed U.K.'s GDP rose 0.3% month-on-month in May following a 0.4% decline in April. The expansion was in line with economists' expectations.

The Japanese yen moved up as well against the greenback, gaining 0.36% at 108.46 yen a dollar.

Against Swiss franc, the dollar shed 0.4% at 0.9896, and against the Aussie, is was down 0.45%, at 0.6959.

The Canadian loonie was up 0.34% with the USD-CAD pair hovering around 1.3083. The Bank of Canada today left its key interest rate unchanged at 1.75%.

"Recent data show the Canadian economy is returning to potential growth," the central bank said in its accompanying statement.

"However, the outlook is clouded by persistent trade tensions. Taken together, the degree of accommodation being provided by the current policy interest rate remains appropriate," it added.

The bank said that it will continue to monitor data ahead of future decisions with a particular focus on developments in the energy sector and the effects of global trade tensions.

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