Finance
Dollar higher after Powell says Fed inflation fight ‘has a long way to go’
Global Banking & Finance Review®
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By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The U.S. dollar edged higher against a basket of currencies on Wednesday after Federal Reserve Chair Jerome Powell said the central bank’s fight to lower inflation “has a long way to go”.
The dollar index, which measures the currency against six rivals, was 0.15% higher on the day at 102.66, after the release of Powell’s testimony prepared for delivery to the House Financial Services Committee at 10:00 a.m. ET (1400 GMT).
“Inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go,” Powell said, noting that even as the Fed held off raising interest rates at the Federal Open Market Committee meeting last week “nearly all” participants expected further rate increases would be appropriate by the end of the year.
The hearing, the first of two Capitol Hill appearances this week as part of his twice-yearly reports to federal lawmakers, was set to begin at 10 a.m. (1400 GMT). Powell will appear before the Senate Banking Committee on Thursday.
“The prepared remarks seem like mostly a re-hash of last week’s presser… … I don’t think markets have reacted too significantly thus far,” TraderX market strategist Michael Brown said.
“Consumer Price Index and Non-Farm Payrolls in July are going to be huge events, though it does feel that unless there’s some kind of disastrous jobs print they’re going to hike in July come what may,” Brown said.
Investors broadly expect rate increases to resume at the Fed’s July meeting, though financial market indicators reflect doubts that the Fed will deliver more increases beyond that meeting.
YEN UNDER PRESSURE, STERLING SEESAWS
The euro was about flat against the dollar at $1.0915. Against the yen, the dollar was up 0.6% at 142.33 yen, with the Japanese currency under pressure after Bank of Japan Governor Kazuo Ueda on Wednesday reiterated the central bank’s dovish stance to maintain its ultra-loose monetary policy.
The British pound seesawed on Wednesday, initially jumping after data showed UK inflation accelerated more than expected in May, then reversing gains as concerns flared over the Bank of England’s ability to protect the economy from stagnating.
The annual pace of British consumer price gains was steady at 8.7% in May, against hopes it had cooled since April, with the UK’s inflation rate remaining more persistent compared with other major economies.
Adam Cole, chief currency strategist at RBC Capital Markets, said sterling’s weakness may be down to fears that “inflation is high enough and consistent enough for it to become negative for the currency”.
The pound was last down 0.43% at $1.2708, a near 1-week low.
The Australian dollar was down 0.55% at $0.675, on pace for a 4th straight day of losses, weighed down by the release on Tuesday of the minutes of the Reserve Bank of Australia’s June policy meeting, where guidance on yet further increases was absent, a sign that markets took as dovish.
The Aussie, which is very sensitive to Chinese economic data, has also come under pressure due to lacklustre stimulus measures from Beijing.
Bitcoin extended overnight gains to breach $29,000 for the first time since late May, helped by the launch of a new crypto exchange backed by Fidelity, Citadel Securities and Charles Schwab. It was last up 2.87% at $29,129.
(Reporting by Saqib Iqbal Ahmed, additional reporting by Tom Westbrook and Farouq Suleiman; Editing by Sam Holmes, Kim Coghill, Sharon Singleton and Alex Richardson)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to keep the economy running smoothly.
The Federal Reserve, often referred to as the Fed, is the central bank of the United States, responsible for implementing monetary policy and regulating financial institutions.
A currency index measures the value of a currency against a basket of other currencies. It helps assess the strength or weakness of a currency in the foreign exchange market.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are influenced by central bank policies and economic conditions.
Cryptocurrencies are digital or virtual currencies that use cryptography for security. They operate on decentralized networks based on blockchain technology.
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