NEW YORK: The US dollar index hit a three-week high on Thursday as investors reevaluated Wednesday’s minutes from the Federal Reserve’s July meeting as more hawkish than originally interpreted and after data showed solid US economic momentum.
The dollar pared gains on Wednesday after the meeting minutes showed that Fed officials were concerned the US central bank could raise rates too far as part of its commitment to get inflation under control.
Investors reconsidered this interpretation on Thursday, however, and focused on the likelihood that the US central bank will continue to aggressively hike rates to stem inflation.
“The Fed’s rhetoric has been very steadfast from almost everybody – we’re got to raise rates, we’ve got to raise rates, rates are going higher,” said Joseph Trevisani, senior analyst at FXStreet.com in New York.
The minutes also flagged what will be an important dimension of the Fed’s debate in coming months - when to slow down the pace of rate increases.
“Except for the part about slower pace of rate hikes, the rest of the minutes read very hawkish,” Win Thin, global head of currency strategy at Brown Brothers Harriman said in a report.
The dollar index was last up 0.24% at 106.88.
The euro fell 0.35% on the day against the dollar to $1.0142, while the US currency dipped 0.11% against the yen to 134.92.
The odds of a 75 basis-point hike in September have dropped to 35% since the meeting minutes, from 52% earlier on Wednesday, with a 50 basis-point hike now assigned a 65% probability.
However, consumer price inflation and jobs data for August that is due before the Fed’s September meeting will likely impact the size of a rate hike.
The September meeting will also offer new information on how far Fed officials expect rates to rise. Traders currently see the benchmark rate peaking at 3.65% in March.
Trevisani said he expects the Fed to go up to around 4%, adding that even that is unlikely to be enough to tame prices that are rising at an annual pace of 8.5%.
Meanwhile data on Thursday showed that the economy remained relatively strong. The Philadelphia Federal Reserve’s monthly manufacturing index rose to 6.2 this month from negative 12.3 in July, topping all 30 estimates in a poll of Reuters economists.
The number of Americans filing new claims for unemployment benefits also fell moderately last week.
Steeling dipped 0.27% to $1.2018 as traders worried soaring UK inflation would mean higher interest rates and a weaker British economy.
Comments
Comments are closed.