The greenback rallied toward a three-month high as traders mulled the possibility of higher-for-longer interest rates ahead of Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium on Friday.
The Bloomberg Dollar Spot Index climbed as much as 0.2% to the highest since early June as investors readied for cues from Powell on the Fed’s future steps to fight inflation and how they might be more hawkish than peers. The dollar gained against every G-10 currency, pushing the pound and the euro to 10-week lows.
“The US dollar has been benefiting in the near-term from heightened investor concerns over growth outside the US, especially in China and Europe,” said Lee Hardman, senior currency analyst at MUFG Bank. “The US economy is proving more resilient than expected so far this year.”
Widely deemed to be running out of steam just a few months ago, a resurgent greenback underscores how investors are re-evaluating their US rates bets as the strength of the world’s biggest economy continues to defy expectations of a slowdown. Two Fed officials on Thursday signaled the central bank may be close to being done with rate hikes but one of them refrained from ruling out further increases until inflation is more clearly on a downtrend.
Kit Juckes, chief FX strategist at Societe Generale in London, expects the dollar to strengthen to $1.05 against the euro in the coming weeks as he says Powell is likely to stay hawkish when he delivers a speech today. In the longer term, the US growth picture may not be so strong as activity has been partly supported by expansive fiscal policy that may not be sustainable in the long run, he said.
“The outbreak of US forecasters’ optimism about the US economy set the scene for today’s Jackson Hole symposium,” said Juckes. “Higher for longer will be the mantra from the Fed Chair, pushing back against the rate cuts priced into the yield curve for next year.”
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