US Dollar Index hits three-month high ahead of Powell’s speech

August 25, 2023 (MLN): 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, Bloomberg reported.

The U.S. Dollar 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 major currency, with the risk-sensitive South Korean won and the Swedish krona among the worst losers.

“The relative fundamental story continues to move in favor of the greenback,” Win Thin, global head of currency strategy at Brown Brothers Harriman & Co. in New York, wrote in a note.

“The recent FOMC, European Central Bank and Bank of Japan decisions as well as the ongoing economic data underscore the divergence theme and so further dollar gains seem likely.”

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.

“Powell is likely to reiterate the job is not yet done, keeping a hawkish tilt,” said Rodrigo Catril, currency strategist at National Australia Bank. “So dollar can track higher near term.”

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