The US dollar index and the euro currency both slipped on Thursday in choppy trading as investors awaited Federal Reserve Chairman Jerome Powell's speech on Friday for further clues on the pace of continued US central bank rate hikes.
Investors expect a rate hike of 50 or 75 basis points in September as the Fed fights inflation, but at the same time emphasizes some weak U.S. economic data.
According to Shaun Osborne, chief FX strategist at Scotiabank in Toronto, he sees the market possibly expecting a hawkish message from Powell. However, "since the last FOMC, data from the U.S. not so good. I think with gasoline prices in the U.S. down significantly there is a view that inflationary pressures may have peaked,” said Osborne.
Kansas City Fed President Esther George said it was too early to predict how much the U.S. central bank would do. will raise interest rates next month, with key reports on inflation and the labor market still awaited.
Atlanta Fed President Raphael Bostic also said he has not decided whether the Fed should raise interest rates by 50 basis points or 75 basis points at next month's policy meeting.
The US dollar index was last down 0.05% at 108.57. It is below the 20-year high of 109.29 reached on July 14. The US dollar began to strengthen further after data on Thursday showed that the U.S. economy contracted at a more modest rate than initially thought in the second quarter.
The Euro lost 0.04% against the US dollar to trade at $0.9964. The single currency euro briefly rebounded above parity overnight, before retracing after business sentiment in Germany in August fell to its lowest level since June 2020.
The Euro's movement was largely driven by rising natural gas prices, which were linked to a weaker euro due to Europe's reliance on natural gas. Added to this are concerns about the global economy, causing investors to be more interested in safe havens.
The Australian dollar began to decline after Chinese state media reported that China would take more steps to support the economy, including increased funding support for infrastructure projects and increased support for private firms and technology companies.
