Dollar set for strong quarterly gains as Powell stays hawkish
Investing.com — The U.S. dollar stabilized in early European trade Friday, but is on course to record strong quarterly gains as traders anticipate the U.S. Federal Reserve raising interest rates further as the year progresses.
At 02:00 ET (06:00 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded marginally lower at 102.980, but is heading for a gain of about 0.7% in the second quarter.
Fed Chair Jerome Powell has been pretty clear over the last few weeks, including at the European Central Bank’s annual gathering in Portugal earlier this week, that the U.S. central bank is likely to resume its rate-hiking cycle after pausing in June.
Data released on Thursday showed that the U.S. economy grew much more than initially thought in the first quarter, while the jobless claims data indicated a still strong labor market.
“Central bank communication at this week's Sintra conference in Portugal has stayed pretty hawkish. The core message seems to be that low unemployment rates have allowed economies to withstand large tightening cycles reasonably well, meaning that inflation has not fallen as much as expected,” said analysts at ING, in a note.
“Expectations for the duration and terminal rates for tightening cycles are being revised higher. This is most credibly being done in the U.S., where the economy appears to be outperforming.”
The focus now falls later Friday on the release of the personal consumption expenditures index, the Fed’s favorite gauge of inflation, which is expected to have remained steady in May from the prior month, pressuring the Fed into keeping rates high to curb sticky inflation.
Back in Europe, EUR/USD rose 0.1% to 1.0874, ahead of the release of the June
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