The dollar rose against major currencies on Monday, broadly supported by Federal Reserve officials saying additional interest rate hikes are likely given that inflation remains persistently high and the labor market is still tight.
Fed Governor Michele Bowman said on Monday additional interest rate hikes will likely be needed to lower inflation to the U.S. central bank’s 2% target.
Bowman, in remarks prepared for delivery to a “Fed Listens” event in Atlanta, said she backed the latest rate increase last month because inflation remains too elevated, and job growth and other indications of activity show the economy has continued expanding at a “moderate pace.”
New York Fed President John C. Williams said, in an interview with the New York Times published on Monday, the central bank will need to keep the restrictive stance for some time. Maintaining that stance is going to be determined by the underlying fundamentals “driving, supply and demand in the economy, inflation,” he added.
In mid-afternoon trade, the dollar gained 0.5% against the yen to 142.45 yen, rising from a one-week low earlier in the session. The dollar was slightly up versus the Swiss franc at 0.8731 francs.
The dollar index was last little changed at 102.03. It fell to a one-week low last Friday in the wake of a U.S. non-farm payrolls report that came out weaker than expected.
Jeff Klingelhofer, portfolio manager and co-head of investments at Thornburg Investment Management, said he sees the dollar holding gains in the near to medium term.
“I’m expecting a longer pause from the Fed and that should be dollar-supportive just because of interest rate differentials. So the U.S. staying higher for longer should support the dollar,” said Klingelhofer.
“I also believe that if interest rates stay at higher levels, then inevitably you get that deeper recession when the consumer deteriorates. Then you get safe-haven flows that will be broadly supportive of the dollar.”
The Fed late last month raised its benchmark rate by a quarter percentage point to a range of 5.25% to 5.50%. Investors by and large believe that is likely the last increase of a campaign the Fed kicked off in March 2022.
In other currencies, the euro slipped against the greenback to $1.1006 after Monday’s data showed German industrial production in June dropped more strongly than forecast, falling 1.5% compared with the previous month.
Investors are also starting to focus on upcoming U.S. and Chinese inflation data. U.S. data out on Thursday is expected to show July core inflation at 4.7% on an annual basis. China will report July inflation on Wednesday, with traders on the lookout for further signs of deflation.
The dollar was last 0.2% higher against the offshore Chinese yuan at 7.2024.
Sterling rose 0.3% against the dollar to $1.2783. Last Thursday, the Bank of England (BoE) raised interest rates by 25 basis points to a 15-year peak of 5.25%.