The dollar gains as firmer-than-expected US inflation keeps year-end Fed rate hike expectations alive, while markets await signals from the Jackson Hole symposium and Bank of Japan on its September policy outlook
The US dollar held near an eight-day high on Thursday after fresh inflation data kept expectations of a possible Federal Reserve rate hike alive, with investors turning their attention to key central bank signals from Jackson Hole and Japan.
The dollar index, which measures the greenback against a basket of major currencies, rose 0.21 per cent to 99.13, its highest level since August 19.
US Personal Consumption Expenditures (PCE) inflation increased 0.2 per cent in July from the previous month, above economists’ forecast of a 0.1 per cent rise. On an annual basis, PCE inflation stood at 3.7 per cent, unchanged from June and slightly above the 3.6 per cent expected by economists polled by Reuters.
The firmer inflation reading strengthened the case for keeping Fed rate hike expectations in play through the end of the year. However, markets are now looking to Federal Reserve Chair Kevin Warsh’s remarks at the Jackson Hole central bankers’ symposium for clearer guidance on the central bank’s policy path.
Westpac economist Ryan Wells said the speech would be the “ultimate test” for the market’s rate expectations.
The dollar’s gains came as investors also assessed the outlook for the Japanese yen. The dollar traded at 159.23 yen after surrendering most of the gains triggered by recent intervention, although it remained below a multi-decade low around 164 yen.
More from BusinessMarkets are closely watching a speech and press conference by Bank of Japan Deputy Governor Ryozo Himino for clues about the possibility of a September rate increase and the pace of further monetary tightening.
Money markets were pricing in an 87 per cent probability of a BOJ rate hike next month, according to Totan Tanshi.
Any indication from Himino that policymakers are preparing to discuss a September increase could support the yen, although analysts expect yen buying to remain restrained ahead of both Himino’s remarks and the Jackson Hole event.
Elsewhere, the euro traded at $1.1655 and the British pound was steady at $1.3592. The Australian dollar rose 0.18 per cent to $0.7181, while the New Zealand dollar gained 0.1 per cent to $0.5948.
The Canadian dollar was little changed at C$1.388 per US dollar, with trade tensions between Canada and the United States also remaining in focus after US President Donald Trump renewed criticism of Canada following the breakdown of trade talks.
In cryptocurrencies, bitcoin rose 0.55 per cent to $78,874.60, while ether gained 1.07 per cent to $2,498.35.
