US dollar rebounds after Fed chair Powell reaffirms hawkish outlook

Advertisement



By Samuel Indyk

LONDON (Reuters) – The US dollar bounced back on Wednesday, a day after its biggest daily loss in more than two months, as US Federal Reserve chief Jerome Powell struck a more hawkish tone as the central bank battles to rein in surging inflation.



Powell pledged that the US central bank would ratchet up interest rates as high as needed, including taking rates above neutral, to kill a surge in inflation that he said threatened the foundation of the economy.

The neutral rate is the level at which economic activity is neither simulated nor constrained.

“It’s a strong reminder to the market that the Federal Reserve is going to be hiking interest rates, probably at a very accelerated pace, in order to regain their credibility on the inflation front,” said Jane Foley, head of FX at Rabobank.

Advertisement

“The hawkish Fed is the reason why sentiment this morning looks a little bit more fragile than it did yesterday.”

At 0810 GMT, the US dollar index was up 0.3% at 103.59, after earlier touching a two-week low following Tuesday’s 0.9% drop.

The euro slipped 0.3% to $1.0516, reversing an earlier rise to a one-week high, a day after European Central Bank policymaker Klaas Knot said a 50 basis point rate increase in July was possible if inflation broadens.

Advertisement

Knot is one of the more hawkish ECB members, Commerzbank analysts noted, adding that his view did not necessarily reflect the majority view on the ECB board.

“Nonetheless, by making this comment Knot opens up a new line of attack for the ECB hawks,” Commerzbank analyst Ulrich Leuchtmann said in a note.

Sterling fell 0.7% to $1.2406 as data showing British inflation surged 9% last month to its highest annual rate since 1982 piled pressure on policymakers to help households facing a worsening cost-of-living crisis.

The Australian dollar fell 0.3% to $0.70075 as Australian wage growth ticked up by only a fraction last quarter, leading investors to scale back bets on larger increases in interest rates.

Figures from the Australian Bureau of Statistics on Wednesday showed its wage price index (WPI) rose 0.7% in the March quarter, missing forecasts for a 0.8% increase.

Advertisement

The yen rose 0.1% to 129.14 per dollar, holding steady just above the two-decade low hit last week.

Cryptocurrency were fairly quiet after last week’s turmoil. Bitcoin slipped about 2% and was last a fraction below $30,000. Ether was holding above $2,000 but was still down 2.9%.

(Reporting by Samuel Indyk and Alun John; Editing by Simon Cameron-Moore and David Clarke)

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practice the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard,

Digital Editor





Source link

Leave a Comment

Your email address will not be published.