Dollar edges lower, but set for weekly gain after Powell’s speech

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In the early European trading session on Friday, the value of the U.S. dollar slightly increased but remained on track for significant weekly gains. This was influenced by Jerome Powell, the Chair of the Federal Reserve, suggesting the potential implementation of more interest rate increases as a measure to address inflation.

The Dollar Index, which measures the strength of the US dollar against a selection of other currencies, slightly decreased by 0.1% to 105.727 at 03:20 ET (07:20 GMT). However, it is still expected to end the week with an overall increase of nearly 1%.

Hawkish Powell boosts dollar

The value of the dollar has increased following a statement made by the Federal Reserve chairman, Powell, who stated that the U.S. central bank is prepared to raise interest rates in order to address inflation if needed.

Powell stated that the Federal Reserve is dedicated to implementing a monetary policy that is adequately strict to eventually reduce inflation to 2%.

We are unsure if we have reached the desired position. If it seems necessary to make policy stricter, we will not hesitate to take such action.

This statement was made by a series of other Federal Reserve officials and was made a week after the central bank of the United States decided to keep interest rates unchanged. This decision raised the possibility that interest rates may have reached their highest point and resulted in a decline in the value of the dollar.

Traders continue to believe that there is a strong chance that the Federal Reserve will maintain interest rates at their current level during its last meeting of the year in December. However, some traders are now considering the possibility of a rate hike occurring in the early months of the following year.

Lagarde speech, U.K. GDP in focus

In late October, the European Central Bank maintained interest rates unchanged during its meeting, and later in the session, President Christine Lagarde is scheduled to deliver a speech.

The EUR/USD currency pair increased slightly to a rate of 1.0667, but is on course to decrease by 0.6% for the week. The most recent European Union business activity data, released earlier in the week, indicates a higher likelihood of a recession occurring in the region before the year ends.

After the data was released on Friday, the GBP/USD currency pair increased to a rate of 1.2224. The data revealed that economic growth in the U.K. stalled during the third quarter, but there was a slight improvement in gross domestic product (GDP) with a 0.2% increase in September, which was slightly higher than the predicted stable figure.

The duo is still on track to experience a decrease of approximately 1.2% by the end of the week.

Traders on yen intervention watch

In Asia, the USD/JPY increased by 0.1% to reach 151.34. This surge pushed the currency pair beyond the 151 threshold and led to speculation about potential intervention by the Japanese authorities in the foreign exchange market. The contrasting stances of the accommodative Bank of Japan and the more hawkish Federal Reserve Chair added to the anticipation.

The exchange rate of USD/CNY increased by 0.1% to 7.2930 as the yuan’s value decreased due to concerns about a potential economic slowdown in China. These concerns were raised after several weak data points were released for the month of October.

The AUD/USD decreased to 0.6362, indicating a decrease of more than 2% this week. This drop was influenced by the Reserve Bank of Australia’s cautious statements following its recent interest rate increase.