Dollar edges lower as investors wait on Fed’s Powell

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NEW YORK — The dollar index slipped while

the euro was steady on Thursday in choppy trading as investors

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awaited Federal Reserve Chairman Jerome Powell’s speech on

Friday for further clues about the pace of the U.S. central

bank’s rate hikes.

Investors are tossing up between the likelihood of a 50 or

75 basis point rate increase in September as the Fed battles

inflation while facing some softer U.S. economic data.

“It seems to me that markets are maybe expecting a hawkish

message from Powell,” said Shaun Osborne, chief FX strategist at

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Scotiabank in Toronto.

However, “since the last FOMC the numbers out of the U.S.

have not really been all that good. I think with gasoline prices

in the U.S. coming down quite significantly there is the view

that inflationary pressures may well have peaked,” Osborne said.

Fed officials on Thursday were noncommittal about the size

of the rate hike they will approve at their Sept. 20-21 meeting,

but continued hammering the point they will drive rates up and

keep them there until inflation has been tamed.

“The only dovish element that is immediately up for debate

is incremental policy changes to fed funds at upcoming

meetings,” Alan Ruskin, macro strategist at Deutsche Bank, said

in a note on Thursday.

However, “even here, do not expect Powell to resolve the 50

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bp versus 75 bp debate for the September meeting,” Ruskin said,

noting that the Fed will want to see August’s jobs and inflation

data before making a decision.

Fed funds futures traders are pricing in a 65% chance of a

Fed rate hike of another 75 basis points at its September

meeting, and a 35% probability of a 50 basis points increase.

The dollar index fell 0.14% to 108.46. It is holding

just below a 20-year high of 109.29 reached in on July 14.

The currency edged higher after data on Thursday showed the

U.S. economy contracted at a more moderate pace than initially

thought in the second quarter.

The euro was unchanged against the greenback on

the day at $0.9968.

The single currency briefly rose back above parity

overnight, before retracing after the release of a closely

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watched index showing business morale in Germany in August had

fallen to its lowest since June 2020.

European Central Bank policymakers meeting last month

appeared increasingly concerned that high inflation was getting

entrenched, even as the risk of a recession loomed in the bloc,

the accounts of the July 21 meeting showed on Thursday.

The euro/dollar’s direction this week has largely been

driven by soaring natural gas prices, which are correlated with

a weaker euro because of the region’s dependence on gas for its

energy needs. That, plus worries about the global economy had

sent investors into dollars earlier this week.

The Australian dollar was lifted after a Chinese state media

report said China would take more steps to support the economy,

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including increasing funding support for infrastructure projects

and ramping up support for private firms and technology

companies.

The Aussie gained 1.01% to $0.6976.

China’s yuan also rebounded from a two-year low against the

dollar as official guidance was set at a firmer-than-expected

level.

Market participants said the guidance could be a sign that

authorities are becoming increasingly uncomfortable with rapid

losses in the yuan, which has fallen about 1.6% against the

dollar so far in August.

“How the yuan performs can at the margin affect how the

dollar trades more broadly against the majors, so that’s

something to certainly keep an eye on in the short run at

least,” said Osborne.

The dollar dipped 0.15% against the Chinese currency

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to 6.8477.

The greenback also fell 0.47% against the Japanese yen

to 136.47.

The Bank of Japan must maintain massive monetary stimulus

and its dovish policy guidance until wages show clearer signs of

increasing, one of its board members said, reinforcing the

central bank’s outlier status in a global wave of monetary

tightening.

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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 108.4600 108.6300 -0.14% 13.377% +108.7000 +107.9700

Euro/Dollar $0.9968 $0.9970 +0.00% +0.00% +$1.0033 +$0.9949

Dollar/Yen 136.4650 137.1200 -0.47% +0.00% +137.1950 +136.3150

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Euro/Yen 136.03 136.65 -0.45% +0.00% +136.9800 +136.0200

Dollar/Swiss 0.9636 0.9668 -0.33% +0.00% +0.9670 +0.9615

Sterling/Dollar $1.1826 $1.1791 +0.31% +0.00% +$1.1864 +$1.1790

Dollar/Canadian 1.2938 1.2972 -0.27% +0.00% +1.2975 +1.2897

Aussie/Dollar $0.6976 $0.6907 +1.01% +0.00% +$0.6991 +$0.6903

Euro/Swiss 0.9606 0.9631 -0.26% +0.00% +0.9656 +0.9603

Euro/Sterling 0.8426 0.8443 -0.20% +0.00% +0.8461 +0.8424

NZ $0.6220 $0.6191 +0.49% +0.00% +$0.6251 +$0.6177

Dollar/Dollar

Dollar/Norway 9.6685 9.6900 -0.01% +0.00% +9.7235 +9.6095

Euro/Norway 9.6401 9.6565 -0.17% +0.00% +9.6959 +9.6075

Dollar/Sweden 10.5966 10.6066 -0.12% +0.00% +10.6190 +10.5244

Euro/Sweden 10.5631 10.5754 -0.12% +0.00% +10.5867 +10.5396

(Additional reporting by Tommy Wilkes in London; Editing by

Kirsten Donovan and Richard Chang)