US Dollar Hits One-Month High, Fed Hints at More Rate Hikes

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Facts

  • On Fri., the US dollar index - which measures the value of the US dollar relative to a basket of other currencies - hit a five-week high, with Federal Reserve (Fed) officials talking up the need for more interest rate hikes.1
  • The dollar index increased 0.61% to $108.13 , the highest since July 15, as the Euro dipped 0.32% to $1.0055, the weakest since the same date.2
  • Meanwhile, the British sterling dropped 0.89% to $1.1830, its weakest since July 21. The USD also rose to 136.38 against the yen for the first time since July 28.3
  • European currencies are said to have been unable to get a lift due to renewed inflation fears that have pressured regional central banks to keep tightening.4
  • Regional US Fed leaders agree with increasing interest rates, as St. Louis Fed Pres. James Bullard said he'd support a 75-basis-point hike, and San Francisco Fed member Mary Daly said a 50- or 75-basis-point hike would be 'reasonable.'3
  • Fed Chair Jerome Powell is expected to update the market on his views at the annual Jackson Hole symposium Aug. 25-27.1

Sources: 1Reuters, 2CNBC, 3Market Screener and 4Nasdaq.

Narratives

  • Narrative A, as provided by Bloomberg. Fed policies take time to be felt in the broader economy, so the central bank should be cautious when deciding its next move. With inflation already easing last month, we should wait to see how the previous rate hikes affect it before adding even more.
  • Narrative B, as provided by Forbes. The one-month slowing of inflation in July doesn't prove any meaningful cooling of the economy, so the Fed should continue its significant rate hikes in the coming months. Only if you believe inflation will rapidly decline in the near term would you want the Fed to pull back the reins, and that scenario is very unlikely.