Dollar Rises as Fed Officials Signal Further Interest Rate Hikes
NEW YORK/LONDON (Reuters) – The dollar strengthened against major currencies on Monday, driven by comments from Federal Reserve officials suggesting the need for additional interest rate hikes due to persistently high inflation and a tight labor market.
Fed Governor Michele Bowman emphasized the robustness of the US economy during a “Fed Listens” event in Atlanta, stating that further rate hikes are likely necessary to bring inflation down to the target of 2%. She supported the recent rate hike, citing elevated inflation levels and sustained growth in job numbers and other economic indicators.
New York Fed President John C. Williams echoed these sentiments in an interview with The New York Times, asserting that the central bank will need to maintain a stringent approach for some time, guided by key economic fundamentals such as drivers of supply and demand and inflation.
In afternoon trading, the dollar strengthened by 0.5% against the Japanese yen to 142.45 yen, rebounding from a week-long low earlier in the session. It also experienced a slight increase against the Swiss franc, reaching 0.8731.
However, the dollar remained relatively unchanged at 102.03 points. It had previously dropped to one-week lows following the release of the weaker-than-expected US Nonfarm Payrolls report on Friday.
Jeff Klingelhofer, a portfolio manager and co-chief investment officer at Thornburg Investment Management, anticipates short to medium-term gains from holding the dollar. He believes that a more extended pause from the Fed would support the currency due to interest rate differentials, speculating that a prolonged period of higher rates in the US would bolster the dollar.
Meanwhile, the euro dipped to $1.1006 following reports of a larger-than-expected decline in German industrial production for June. This highlights the challenges faced by the manufacturing sector amid a slowdown in Europe’s largest economy.
Market participants will closely monitor upcoming US and Chinese inflation data this week. US inflation data is scheduled for release on Thursday, while Chinese data will be available a day prior, serving as crucial indicators for traders in assessing the risk of deflation.
(Additional reporting by Rae Wee in Singapore; editing in Spanish by Carlos Serrano and Aida Peláez-Fernández)