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Dollar Dips Lower As Investors Waiting For Powell’s Speech

On Thursday, the US dollar index declined, while the euro was held steady in choppy trading, with investors waiting for the speech of Jerome Powell, the chairman of the Federal Reserve.

The speech is due on Friday and investors are looking forward to it to look for clues about the pace of the interest rate hikes of the US Federal Reserve.

Investors divided

Investors have been divided about the extent of the interest rate hike to expect in the September meeting of the Fed.

There is a division between the possibilities of a 50 or 75 basis points hike, as the US central bank battles inflation, while the economic data is showing signs of softening.

Market analysts said that investors are expecting Powell to deliver a hawkish message. But, since the last meeting of the bank, the economic data coming out of the country has not exactly been good.

They said that since gasoline prices have gone down in the US, there is a possibility that inflation may have finally peaked.

On Thursday, the Fed officials did not mention anything about the size of the rate hike to expect in the next meeting scheduled for September 21st.

However, they reiterated that they would continue increasing rates and keep them high until they manage to curb inflation.

Data in focus

Analysts said that the only dovish aspect that was up for debate right now was the incremental policy changes that would be made to fed funds in future meetings.

But, they said that even here, it was unlikely for Powell to solve the debate between 50 and 75 bps for the next meeting.

It is likely that they would want to see the inflation and jobs data for August before they make a decision in this regard.

Traders of fed funds futures have priced in a 65% possibility of an interest rate hike of 75 basis points in the next month, while a 35% chance of 50 basis points has been priced in.

Dollar index

There was a 0.14% drop in the US dollar index to reach 108.46, which brought it just below a high of 20 years of 109.29 that it had hit on July 14th.

On Thursday, the currency moved up after data showed that there was a contraction in the US economy at a more moderate pace in the second quarter than had been believed initially.

The euro remained steady against the greenback for the day at a value of $0.9968. There was a brief rise in the single currency overnight, as it moved back above parity.

However, it eventually retraced after data showed that business morale in Germany dropped to its lowest in August since June 2020.

Last month, policymakers of the European Central Bank (ECB) had been increasingly concerned about inflation getting entrenched in the economy, even with the possibility of recession looming.

Rising prices of natural gas have driven the direction of the euro/dollar currency pair for most of this week.

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