Dollar Rebound As Powell Remains Committed To Curbing Inflation

On Friday, the US dollar index recorded gains after a hawkish stance was taken by the US Federal Reserve’s chairman, Jerome Powell.

While he was hawkish in terms of battling inflation, he did not shed light on the size of the rate hike to expect in the September meeting of the US central bank.

Powell’s remarks

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According to the Fed boss, there is no quick cure that can be used for dealing with the decades-high inflation that the US economy is facing.

He stated that tight monetary policy would have to be kept for some time before they can control inflation and this would mean pain for households and businesses, a slowing economy, and a softer job market.

Market analysts said that the hopes of a dovish pivot were dashed for the foreseeable future because Powell’s comments make it clear that they want to see improvement in inflation data.

But, they are not going to settle for improvement for just a month; they want to see improvement in the long term before they change their stance.

Powell did not provide a number about the magnitude of rate hikes to expect in the next meeting of the Fed in September, only that they would continue hiking to bring inflation down to their 2% goal.

Analysts said that this means the jury is still out on whether the Fed will hike the interest rates by 50 or 75 basis points in the next month.

They added that the inflation and jobs data for August that will be released before September’s meeting would be key for determining the size of the increase in interest rates.

Currency movements

There was a 0.30% rise in the US dollar index for the day, which saw it reach 108.78 after it had dropped to 107.54 earlier in the day.

On Tuesday, the index had reached a high of five weeks at 109.27 and is below 109.29, which is a 20-year high it achieved on July 14th.

There was a 0.07% drop in the euro, as it came down to $0.9963. On Tuesday, the single currency had come down to $0.99005, which is a low of 20 years.

There was also a 0.66% gain in the US dollar against the Japanese yen, as it reached 137.39.

On Friday, the dollar had dropped earlier because of data showing that there had not been much of an increase in US consumer spending in July.

This was because service stations’ receipts were weighed down by a drop in gasoline prices and there was a slowdown in monthly inflation.

Other data

On Friday, other data had shown that August recorded an improvement in US consumer sentiment and the near-term inflation expectations of households also dropped to a low of eight months.

The President of Atlanta Fed, Raphael Bostic said he was ‘leaning’ towards a hike of 50 basis points, considering the recent inflation data.

This would mean that the Fed would reach a rate of 3.5% to 3.75% by the end of the year.

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