The dollar was trading near two-month high before Powell's address in early trade

25 Aug 2023 , 09:49 AM

As markets await Federal Reserve Chair Jerome Powell’s speech to determine the direction of monetary policy, the U.S. dollar reached an over two-month high on Friday, on track for its sixth straight week of gains.

Powell will deliver a speech on monetary policy at the Jackson Hole Economic Policy Symposium. Investors will be analysing Powell’s remarks to determine whether the Fed will continue to raise interest rates and for how long.

The dollar index, which compares the value of the dollar to six other currencies, increased by 0.019% to 104.11, its highest level since June 7. The index is on track to end its two-month losing streak after rising 2% in August.

The U.S. central bank’s efforts to slow the economy and bring inflation back to the 2% objective are being complemented, according to two Federal Reserve officials, who also noted that there is a high likelihood that no further interest rate rises will be required.

Patrick Harker, president of the Philadelphia Federal Reserve, and Susan Collins, president of the Boston Federal Reserve, each gave interviews on Thursday.

As the labour market remained tight, data released tonight also revealed a decrease in the number of Americans who filed new applications for unemployment benefits last week.

However, with inflation still over the Fed’s objective, investors are cautious that the U.S. central bank is likely to keep interest rates higher for longer. A recent string of positive economic statistics has helped allay concerns about an oncoming recession.

The Fed’s overnight lending rate is expected to remain around 5% until June 2024, with a rate reduction of about 100 basis points in the second half. At the beginning of August, the market was anticipating cuts of around 130 basis points in 2019.

Sterling was trading at $1.2587, down 0.10% on the day, while the euro was down 0.17% to $1.0791 in other currencies. Two-month lows were reached by both currencies.

As the Asian currency straddled the point at which Japanese authorities intervened last year, the yen declined 0.18% to 146.10 per dollar, keeping traders alert for indications of similar measures this time.

The New Zealand dollar dropped 0.02% to $0.592 and the Australian dollar slipped 0.05% to $0.642.

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