Dollar firm as Fed digs in for protracted inflation fight

By Tom Westbrook

SINGAPORE, Aug 18 (Reuters) - The dollar was on the front foot on Thursday after minutes from the Federal Reserve's July meeting pointed to U.S. interest rates staying higher for longer to bring down inflation.

The greenback gained most against the Antipodeans, especially the Aussie, which was dragged down as weaker-than-expected wage growth weighed on Australia's rates outlook.

The Australian dollar AUD=D3 fell 1.2% on Wednesday to a one-week low of $0.6912. It hovered just above there at $0.6922 in the Asia session, with little reaction to noisy labour data that showed falls in both employment and the jobless rate.

The New Zealand dollar NZD=D3 was also pinned to Wednesday lows and was last down 0.2% at $0.6267. The greenback rose marginally on the euro and sterling and was steady on the yen.

"The bigger picture for the dollar is that it's in a strong uptrend," said Matt Simpson, a senior analyst at brokerage City Index in Brisbane, adding it has now paused a weeks-long pullback

"In some ways, bulls are looking to step back in and I think the Fed minutes gave them a reason to do so."

The dollar rose 0.6% on the yen JPY=EBS overnight and held at 135.06 yen on Thursday. The euro EUR=EBS bought $1.0165 and the dollar index =USD rose 0.1% to 106.740.

Fed officials saw "little evidence" late last month that U.S. inflation pressures were easing, the minutes showed. The minutes flagged an eventual slowdown in the pace of hikes, but not a switch to cuts in 2023 that traders until recently had priced in to interest-rate futures.

"Once a sufficiently restrictive level has been reached, they are going to stick to that level for some time," Rabobank strategist Philip Marey said in a note to clients.

"This clearly stands in contrast to the early Fed pivot that the markets have been pricing in."

Traders see about a 39% chance of a third consecutive 75 basis point Fed rate hike in September, and expect rates to hit a peak around 3.7% by March, and to hover around there until later in 2023. FEDWATCH

Sterling GBP=D3 and China's yuan CNY=CFXS , meanwhile, were beset by economic worries.

Weak consumption, low confidence, anaemic credit growth, a property crisis and restrictive COVID-19 policies have cast a long shadow over China's prospects.

The yuan fell about 0.2% to 6.7928 per dollar.

Britain, meanwhile, is staring at soaring inflation and interest rates. Consumer prices rose at an annual pace of 10.1% in July, the highest since 1982. After blipping higher, growth fears dragged sterling lower and it was last at $1.2040.

It also dropped below its 200-day moving average against the euro.

"Do we get weaker sterling now, ahead of the inevitable recession? Or will sterling hold around here until rates peak and the economic disaster can dominate," asked Societe Generale strategist Kit Juckes in a note.

"I am confident that we will make a new cycle low this year," he said.


Currency bid prices at 0506 GMT Description



U.S. Close Pct Change


High Bid

Low Bid











+1.0164 Dollar/Yen






+135.1650 +134.8000 Euro/Yen

<EURJPY=EB 137.33




+137.5700 +137.2300









+0.9501 Sterling/Dollar GBP=D3






+1.2031 Dollar/Canadian CAD=D3






+1.2914 Aussie/Dollar







+0.6918 NZ







+0.6267 Dollar/Dollar

All spots FX= Tokyo spots AFX= Europe spots EFX= Volatilities FXVOL= Tokyo Forex market info from BOJ TKYFX

World FX rates Link

Reporting by Tom Westbrook; editing by Richard Pullin and Sam

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.