NEW YORK: The dollar gained modestly on Wednesday against its peers as recent strong economic data eased recession fears but reinforced concerns that the Federal Reserve’s inflation-fighting interest rate hikes may stick around for longer.
Survey data released on Tuesday showed US business activity unexpectedly rebounded in February to reach its highest in eight months.
St. Louis Fed President James Bullard said on Wednesday that the US central bank needs to get inflation on to a sustainable path down toward its 2% goal this year or risk a repeat of the 1970s, when interest rates had to be repeatedly ratcheted up. He is the latest Fed official to signal that higher interest rates is likely needed to bring inflation back to desired levels.
“The USD along with assets market is reacting to the realization of investors that it may have been hasty to overlook the Fed’s hawkish guidance at the start of this year,” said Jane Foley, head of FX strategy at Rabobank in London. “Stronger-than-expected US data releases since the start of this month have reinforced the Fed’s messages about stronger for longer interest rates.”
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