Dollar Climbs to New One-Month High on Hawkish Fed Officials

By Peter Nurse

Investing.com - The U.S. dollar rose to a new one-month high in early European trade as Federal Reserve policymakers pointed to further aggressive interest rates ahead in the battle to tame soaring inflation.

At 03:05 ET (07:05 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 107.567, after earlier touching 107.72, its highest since July 18.

The index is on track for a weekly gain of almost 2%, which would be its best weekly performance since June 12.

Helping the tone were a number of Fed officials, including St. Louis Fed President James Bullard and San Francisco Fed colleague Mary Daly, talking up the need for further rate hikes.

This suggests that a third straight 75-basis-point interest rate hike is likely in September, with Kansas City Fed President Esther George saying she and her colleagues will not stop tightening policy until they are "completely convinced" that inflation is coming down.

Elsewhere, EUR/USD fell 0.1% to 1.0083, after earlier dropping to 1.0070, the weakest since July 15. This followed German producer prices riding 5.3% on the month in July, the biggest single gain since the Federal Republic started compiling its data in 1949. Prices were up an incredible 37.2% on the year.

While these renewed inflation concerns will increase the pressure on the European Central Bank to lift interest rates once more in September, this is not helping the single currency as investors appear to be more concerned about the risks of recession.

GBP/USD fell 0.1% to 1.1913 despite U.K. retail sales unexpectedly rising on the month in July, climbing 0.3% as British shoppers spent more than expected last month as many were enticed by online shopping promotions.

This could be the last hurrah for U.K. retailers for some time, with inflation rising above 10% and the Bank of England warning that the country’s economy would likely enter recession in the fourth quarter, and it could last for over a year.

USD/JPY rose 0.5% to 136.56, with higher U.S. yields pushing this pair to its highest level since July 28 and on track for a weekly rise of over 2%, its best showing since June 10.

Risk sensitive AUD/USD fell 0.1% to 0.6910, while USD/CNY rose 0.3% to 6.8079, with the Chinese yuan sinking to a near two-year low versus the dollar in the wake of the week’s insipid economic data and concerns about the health of the country’s real estate market.

USD/TRY rose 0.2% to 18.0966, with the Turkish lira slumping to its lowest level in eight months the day after Turkey’s central bank lowered the benchmark rate to 13% from 14% despite soaring inflation.