The U.S. dollar bounced back on Wednesday, a day after its biggest daily loss in more than two months, as U.S. Federal Reserve chief Jerome Powell struck a more hawkish tone as the central bank battles to rein in surging inflation
Powell pledged that the U.S. central bank would ratchet up interest rates as high as needed, including taking rates above neutral, to kill a surge in inflation that he said threatened the foundation of the economy
The neutral rate is the level at which economic activity is neither simulated nor constrained
“It’s a strong reminder to the market that the Federal Reserve is going to be hiking interest rates, probably at a very accelerated pace, in order to regain their credibility on the inflation front,” said Jane Foley, head of FX at Rabobank
“The hawkish Fed is the reason why sentiment this morning looks a little bit more fragile than it did yesterday
The U.S. dollar index was up 0.1% at 103.48, after earlier touching a two-week low following Tuesday’s 0.9% drop
The euro slipped 0.2% to $1.0526, reversing an earlier rise to a one-week high, a day after European Central Bank policymaker Klaas Knot said a 50 basis point rate increase in July was possible if inflation broadens
Knot is one of the more hawkish ECB members, Commerzbank analysts noted, adding that his view did not necessarily reflect the majority view on the ECB board
“Nonetheless, by making this comment Knot opens up a new line of attack for the ECB hawks,” Commerzbank analyst Ulrich Leuchtmann said in a note
Sterling fell 0.6% to $1.2419 as data showing British inflation surged 9% last month to its highest annual rate since 1982 piled pressure on policymakers to help households facing a worsening cost-of-living crisis
The yen rose 0.2% to 129.12 per dollar, holding steady just above the two-decade low hit last week