The dollar is back on the defensive, yields are slipping, and equity futures are climbing as market participants bet that risks associated with today’s Federal Reserve Congressional testimony are largely priced in. Commodity-linked currencies are up slightly in a modest reversal from yesterday’s China-related selloff, while safe havens like the yen and Swiss franc are seeing softer demand.

The Reserve Bank of Australia raised its cash rate for a tenth consecutive time, but dropped a reference to further increases, hinting only that “further tightening” would be needed. Australian rates have climbed a cumulative 350 basis points since last May, and the economy appears to be responding: home prices are falling, consumer spending is weakening, and wage growth has begun to slow. Traders now expect the central bank to hike once more before pausing, and the Australian dollar is trading near a two-month low as rate differentials widen against it.

In a conversation with Bloomberg’s Francine Lacqua, Bank of England policy maker Catherine Mann said the pound’s fall might have “more to go” as policy continues to tighten at other major central banks. “There has been a quite a hawkish tone coming from the Federal Reserve and European Central Bank” she said. “An important question in regards to the pound is how much of that existing hawkish tone is already priced into the pound. If Fed hawkishness is not priced in, the pound could fall further”. The British economy has been outperforming expectations, with retail sales, employment numbers, and home price gains topping forecasts in recent months – but markets remain convinced a slowdown is coming, with implications for monetary policy. The pound remains under pressure, failing to gain traction during brief flirtations with the 1.20 mark agains the US dollar.

Fed Chair Jerome Powell is expected to lay out the case for higher-for-longer rates when he addresses the Senate in a few hours. In opening comments, he is likely to note that inflation pressures are beginning to subside, while warning that growth and labour market indicators remain too strong, necessitating further tightening – but markets, braced for a hawkish message, will focus more closely on what he says about the tradeoffs that might accompany a rapid rise toward terminal levels. Investors are currently assigning circa-25-percent odds to a half percentage-point hike at the central bank’s March meeting, but we think this remains unlikely – Powell has previously emphasized the importance of the destination and not the pace of hikes, suggesting that he will seek to gradually guide the Fed Funds rate toward 5.5 percent by mid-year.

We would note however that markets often experience reversals during the Fed’s semi-annual monetary policy report. Critical nuance is often lost amid the political posturing that surrounds the first day of testimony, and central bankers are often forced to correct areas of market misunderstanding on the second day. Powell’s comments could also have a short shelf life – with February non-farm payrolls and consumer price numbers set to land over the next week, events are likely to quickly supersede any narrative-driven price action.

Today’s economic agenda is otherwise quiet, but tomorrow’s Bank of Canada decision and US job openings and labor turnover survey could trigger further position adjustments. Canada’s central bankers are widely expected to stay on hold, but could adjust statement language to empathize the conditional, data-dependent nature of the current policy stance – a step that could open the door to a final rate hike in coming months. And if the number of US job openings shows signs of rolling over, market participants could discount January’s blockbuster employment report and lower expectations for Friday’s non-farm payrolls number.