Federal Reserve Chairman Jerome Powell is set to testify to Congress today in what could be a market-moving speech. Here are five ways his testimony could move USD currency pairs, bearing in mind that he heads the central bank of the world’s largest economy.

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Signals about ongoing interest rate hikes

Powell’s testimony could have clues about the level of the Fed’s next interest rate decision set for July 26-27. The stock markets were shocked by the higher-than-expected 0.75 percent hike in June’s decision and dropped sharply.

The currency markets, and the USD in particular, reacted in another way. The USD was supported by expectations of higher interest rates and the potential for better yields on USD-denominated assets like Treasuries and USD savings deposits. As the USD rose, the currency strengthened against other majors like the GBP and EUR. Emerging market currencies are feeling the pressure of a strong USD, both in terms of currency exchange and in terms of the price of USD-denominated crude oil imports.

If there is more hawkish rhetoric during Jerome Powell’s speech, it could provide further support for the USD (UUP).

Signals about pausing interest rate hikes

There is a possibility that the central bank head will talk about the ‘pause’ in interest rate hikes in September, and if the pause isn’t mentioned, market participants might take this to mean the Fed won’t stop its hawkish course until inflation is tamed.

The Fed had been set to raise key interest rate guidance by around 0.5 percent during each meeting until September, when it would pause and evaluate the economy and state of the inflation rate. The central bank has already gone off-script in the sense that the most recent interest rate hike was 0.75 percent instead of 0.5 percent, so there is a distinct chance that a pause is off the table.

What does this mean for the USD currency pairs? An ever-strengthening USD and weaker counterparts is a trend that may have its limits. The USD is connected with America’s export prices, and if the USD keeps rising, it would affect the competitiveness of US exports, undermining economic growth prospects, meaning that in the long term the USD may weaken.

Inflation expectations

‘Inflation remains elevated’ has been an oft-repeated theme in the Federal Reserve’s monthly monetary policy statements. Jerome Powell’s speech will be closely watched for the Fed’s inflation expectations and any reference to inflation being too high may affect the USD currency crosses.

Comments on geopolitical events

Geopolitical events such as the conflict in Ukraine can be a key influence over the Federal Reserve’s GDP growth and inflation expectations, as they affect inflation in commodity prices and market sentiment.

Expectations of GDP growth

The Fed is cautiously optimistic about GDP growth in the US. Any changes in this stance may mean resistance for the USD, as the outlook for the currency depends largely on economic growth.

In other trading news, the UK released closely-watched inflation data today. The inflation rate rose as expected from 9 percent in April to 9.1 percent in May.

Finally, the Bank of Canada releases its CPI data for May. The yearly inflation rate is expected to have risen to 5.9 percent in May compared to 5.7 percent in April.