Dollar holds gains as Powell signals potential further rate hikes

The US dollar held onto gains today following a tough-talking speech from Federal Reserve Chair Jerome Powell that opened the door to further interest rate hikes if inflation remains stubbornly high.

Powell and his Fed colleagues have been beating the hawkish drum all week, insisting they won’t declare victory over inflation until the data convinces them the battle is won. Speaking yesterday, Powell said the Fed could get an assist in taming price pressures from improvements in supply chains and the labor market.

Investors have been optimistic the Fed’s rate hiking cycle is nearing an end, but Powell has consistently stressed since his hardline Jackson Hole address in August that policy will remain data-dependent.

The dollar briefly rallied Friday after data showed consumer sentiment dipped in November while inflation expectations moved higher. The dollar index was little changed on the day around 105.95, up a slight 0.05%.

The greenback had retreated last week when investors perceived a dovish tilt from Powell after the Fed’s policy meeting. This reversed after Friday’s softer jobs report supported hopes the central bank is pausing its rate hikes.

Fed futures now show traders see just an 18% probability of another increase by January, down from 28% a week earlier, according to CME’s FedWatch tool.

The dollar gained 0.10% against the Japanese yen, rising to 151.50 yen, its highest since November 1st. Traders remain alert for possible currency intervention as the yen nears last week’s one-year low of 151.74.