The dollar climbed to a session high on Friday after Federal Reserve Chair Kevin Warsh hinted that rate hikes may be needed if inflation doesn't cool toward the Fed's 2% target. The euro slipped against the greenback, and traders raised the odds of a September hike, while the yen, pound and Canadian dollar all moved on separate drivers.
Warsh remarks lift rate-hike odds
The U.S. dollar rose Friday, extending gains to a session high after Fed Chair Kevin Warsh, in his debut speech at the Jackson Hole symposium of central bankers, said the Fed will "have work to do" if inflation doesn't appear to be cooling toward the central bank's 2% target. The remarks marked the closest Warsh has come to recognizing that a rate hike may be needed to ease price pressures.
Odds of at least a 25 basis point hike at the Fed's September meeting jumped to about 50%, up from about 35% before the speech.
According to Reuters, Eugene Epstein, head of trading and structured products at Moneycorp in Stamford, Connecticut, said: "we're getting more of the same Warsh-speak." Epstein added that if the Fed doesn't follow through again, markets will treat his commentary with growing skepticism.
Euro slips, dollar index near weekly high
The dollar index, which tracks the greenback against a basket of currencies, rose 0.35% to 99.46 after touching 99.592, its highest level since August 19. The euro fell 0.34% to $1.1611.
For the week, the dollar is up nearly 0.7% and on track for its biggest weekly gain in five weeks, while the euro is off about 0.6% and headed for its first weekly drop after four straight weeks of gains. The move follows a trio of Fed officials voicing concerns Thursday about above-target inflation, though Boston Fed President Susan Collins described the latest reading differently while continuing to see gradual disinflation.
Yen, pound and loonie move on separate drivers
Against the Japanese yen, the dollar strengthened 0.31% to 159.88 and was on track for its third weekly gain in four weeks, after data showed Tokyo's annual core inflation accelerated in August for a third straight month.
Sterling weakened 0.18% to $1.3566, on track to snap a four-week streak of gains. The Canadian dollar weakened 0.24% to C$1.388 per dollar even after data showed Canada's economy rebounded sharply in the second quarter, aided by a jump in exports and solid domestic demand. Still, the loonie is down about 0.9% this week, its biggest weekly drop in just over two months, after U.S.-Canada trade talks collapsed last weekend and both countries announced new tariffs.
Source: Reuters
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