The U.S. dollar sat at an over two-month peak on Friday, on course for its sixth straight week of gains as markets await a speech from Federal Reserve Chair Jerome Powell to gauge the path of monetary policy.
Investors will parse through Powell’s address on monetary policy at the Jackson Hole Economic Policy Symposium at 10:05 a.m. ET (1405 GMT) to better understand whether the Fed is done with rate hikes and how long it plans to keep rates elevated.
The dollar index, which compares the value of the dollar to six other currencies, increased by 0.019% to 104.11, its highest level since June 7. The index is on track to end its two-month losing streak after rising 2% in August.
Given how the U.S. economy has demonstrated relative resilience, the market anticipates Powell to use the platform tonight to reinforce the “higher for longer” language, according to Christopher Wong, a currency analyst at OCBC in Singapore.
Powell will probably emphasise, according to Wong, that the outcome of policy is still heavily influenced by economic data.
Powell running the danger of sounding less hawkish than anticipated, according to Wong. He doesn’t have to be dovish, but a statement that is less hawkish might cause the dollar to slacken.
The U.S. central bank’s efforts to slow the economy and bring inflation back to the 2% objective are being complemented, according to two Federal Reserve officials, who also noted that there is a high likelihood that no further interest rate rises will be required.
Patrick Harker, president of the Philadelphia Federal Reserve, and Susan Collins, president of the Boston Federal Reserve, each gave interviews on Thursday.
As the labour market remained tight, data released tonight also revealed a decrease in the number of Americans who filed new applications for unemployment benefits last week.
However, with inflation still over the Fed’s objective, investors are cautious that the U.S. central bank is likely to keep interest rates higher for longer. A recent string of positive economic statistics has helped allay concerns about an oncoming recession.
“While it seems the Fed may be through raising rates, how long will they maintain them at these levels? The crucial query is that, according to Tom Hopkins, portfolio manager at BRI Wealth Management.
The market anticipates the central bank to start lowering rates in May of next year, but I would be dubious of this at this time because the current state of the economy might not warrant monetary easing.
The Fed’s overnight lending rate is expected to remain around 5% until June 2024, with a rate reduction of about 100 basis points in the second half. At the beginning of August, the market was anticipating cuts of around 130 basis points in 2019.
Sterling was trading at $1.2587, down 0.10% on the day, while the euro was down 0.17% to $1.0791 in other currencies. Two-month lows were reached by both currencies.
As the Asian currency straddled the point at which Japanese authorities intervened last year, the yen declined 0.18% to 146.10 per dollar, keeping traders alert for indications of similar measures this time.
The New Zealand dollar dropped 0.02% to $0.592 and the Australian dollar slipped 0.05% to $0.642.