NEW YORK: The dollar pared earlier gains on Wednesday after Federal Reserve Chair Kevin Warsh said that inflation expectations and inflation risks have eased in recent weeks, ahead of a closely watched jobs report due on Thursday.
The Japanese yen, which had earlier slumped to a 40-year low against the greenback, rebounded as the dollar weakened. Warsh, speaking at an international panel, said US central bankers would decide whether to raise interest rates when they convene for their next meeting. He added that questioners would “fail” to draw any forward guidance from him.
The dollar has been underpinned by rising expectations of Fed rate hikes this year, as inflation runs well above the central bank’s 2percent annual target. Still, many analysts believe the inflation picture will improve in the months ahead. “Nothing that we see suggests that any imbalance either on the activity side or the inflation side is growing rapidly,” said Steve Englander, head of global G10 FX research and North America macro strategy at Standard Chartered Bank’s New York branch.
“You can afford to wait and see how these longer-term technological trends play out,” Englander added. “What we do see is that unit labor costs are very, very soft, and ultimately that’s what the Fed controls.” Even absent a more hawkish Fed stance, other forces are drawing capital to the United States and supporting the dollar, including the rapid adoption of artificial intelligence.