HONG KONG- The dollar was on the front foot on Thursday, helped by several US Federal Reserve officials pushing back against suggestions they will slow the pace of interest rate hikes, while the pound was flat ahead of a Bank of England meeting.
The dollar index, which measures the greenback against six peers, was steady in early trade at 106.39 having eked out small gains overnight. It is up around 0.5 percent this week, reversing the trend of the previous two weeks.
“The dollar weakened last week after the (policy setting) Federal Open Market Committee meeting because the market wanted to believe that the Fed was pivoting in a dovish manner because of slowing growth,” said Sim MohSiong, currency strategist at Bank of Singapore.
“This week, there are a lot more FOMC speakers pushing back against this idea, all singing the same tune: ‘we are not done, and you should expect more rate hikes’,” he added.
San Francisco Fed President Mary Daly and Minneapolis Fed President Neel Kashkari overnight voiced their determination to rein in high inflation, reiterating similar messages from other officials the day before.
A Reuters poll of analysts earlier this week found 70 percent thought the dollar was yet to peak in this cycle, even after the dollar index hit a two-decade peak in July.
According to CME’s FedWatch tool, the market is pricing in a 58 percent chance of a 50 basis point rate hike at the Fed’s September meeting, and a 42 percent chance of a another massive 75 basis point increase.
However Sim said the dollar’s recent performance was a mixed picture as the improved risk sentiment, which has also helped equity prices in the US has been supporting risk friendlier currencies. – Reuters
