Dollar gains, Fed’s Powell expected to remain hawkish

The dollar gained against a basket of currencies on Wednesday, holding near a 20-year high as investors waited for a Friday speech by the Federal Reserve chairman for fresh clues on how aggressive the central bank will be in its battle against inflation.

Investors have pared back expectations that the Fed could tilt to a slower pace of rate hikes as inflation remains at 8.5% on an annual basis, well above the Feds 2% target.

Jerome Powell‘s speech in Jackson Hole will be scrutinized for any indication that an economic slowdown might alter the Fed’s strategy.

“While the market might be swinging back and forth between inflation and recession, the central banks arent. They are focused, it seems to be nearly exclusively, on inflation,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

Fed funds futures traders are pricing in a 61% chance that the Fed will hike rates by another 75 basis points at its September meeting, and a 39% probability of a 50 basis points increase.

The dollar index was last up 0.13% at 108.67, holding just below a 20-year high of 109.29 reached on July 14.

The greenback could give back some gains on Friday if Powell expresses any concerns about the impact of the monetary tightening.

“The market has this habit of reading the Federal Reserve as dovish – we saw that with the FOMC minutes,” said Chandler. “To me what this means is that the dollar remains bid ahead of Powell on Friday at 10 am, and then afterwards the markets going to read him dovishly and sell it off.”

The dollar gained even after data on Wednesday showed that new orders for U.S.-made capital goods increased at a slower pace in July from the prior month, suggesting that business spending on equipment could struggle to rebound after contracting in the second quarter.

Other data on Wednesday showed that the U.S. economy likely created 462,000 more jobs in the 12 months through March than previously estimated.

The euro was down 0.06% against the U.S. dollar at $0.9961, after hitting a 20-year low of $0.99005 on Tuesday.

The single currency has been hurt by growth concerns as the region faces an energy crisis. Front-month Dutch gas, the benchmark for Europe, rose again on Wednesday as the prospect of a halt to Russian gas supplies through the main Nord Stream 1 pipeline for three days kept investors on edge.

“The sharp jump in gas prices and the uncertainty about this going forward will continue to weigh on the euro for the time being,” said DNB Markets FX analyst Ingvild Borgen Gjerd.

Cyclical currencies such as the Australian and New Zealand dollars were also under pressure from fears of a global growth slowdown.

The Aussie fell 0.36% to $0.6903 and the kiwi slumped 0.53% to $0.6180.

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Currency bid prices at 3:02PM (1902 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 108.6700 108.5500 +0.13% 13.597% +109.1100 +108.3500

Euro/Dollar $0.9961 $0.9967 -0.06% -12.38% +$1.0000 +$0.9910

Dollar/Yen 137.1150 136.7500 +0.26% +19.09% +137.2350 +136.1750

Euro/Yen 136.57 136.31 +0.19% +4.80% +136.7700 +135.5300

Dollar/Swiss 0.9672 0.9641 +0.31% +6.02% +0.9687 +0.9608

Sterling/Dollar $1.1786 $1.1834 -0.40% -12.85% +$1.1837 +$1.1757

Dollar/Canadian 1.2976 1.2959 +0.14% +2.63% +1.3018 +1.2954

Aussie/Dollar $0.6903 $0.6929 -0.36% -5.02% +$0.6932 +$0.6880

Euro/Swiss 0.9632 0.9607 +0.26% -7.11% +0.9650 +0.9559

Euro/Sterling 0.8448 0.8422 +0.31% +0.57% +0.8456 +0.8409

NZ $0.6180 $0.6213 -0.53% -9.71% +$0.6218 +$0.6164

Dollar/Dollar

Dollar/Norway 9.6910 9.7180 -0.24% +10.05% +9.7495 +9.6560

Euro/Norway 9.6573 9.6825 -0.26% -3.58% +9.6997 +9.6099

Dollar/Sweden 10.6162 10.6242 -0.18% +17.72% +10.6821 +10.5801

Euro/Sweden 10.5750 10.5941 -0.18% +3.33% +10.6155 +10.5598