Dollar Edges Up as US Data Boosts Fed Rate Hike Bets; BOJ Officials Speak

The U.S. dollar hovered near an eight-day high on Thursday, buoyed by economic data that marginally increased the likelihood of a Federal Reserve interest rate hike. This movement occurs just ahead of the highly anticipated Jackson Hole central bankers' symposium.

Recent data from the U.S. Commerce Department revealed that the Personal Consumption Expenditures (PCE) Price Index rose 0.2% month-on-month in July, slightly exceeding economists' forecasts. While the annual inflation rate remained unchanged at 3.7%, the monthly increase kept alive market expectations for a Fed rate hike by year-end. Westpac economist Ryan Wells noted that Fed Chair Kevin Warsh's upcoming speech at Jackson Hole would be the 'ultimate test' for these expectations.

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The reading on inflation kept the market's expectation for a Fed rate hike by year-end live, though Chairman Kevin Warsh's upcoming speech at Jackson Hole 'will be the ultimate test,'

The dollar index, which tracks the greenback against a basket of major currencies, rose 0.21% to 99.13, its highest level since August 19. Against the Japanese yen, the dollar traded at 159.23. Traders are now focused on a speech and press conference by Ryozo Himino, one of the Bank of Japan's deputy governors, for insights into potential September rate hikes and the scope of any monetary tightening.

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In a speech shortly before the rate hike at the January 2025 meeting, Himino said policymakers would 'discuss and decide whether to raise interest rates.' 'If similar wording is used this time, it would likely be taken as signaling a strong possibility of a rate hike at the September meeting.'

Analysts at Mitsubishi UFJ Bank suggested that if Himino uses similar language to a previous statement about discussing and deciding on interest rate hikes, it could signal a strong possibility of a September increase. However, they also anticipate that active yen buying might be limited given the upcoming speeches. Money markets are currently pricing in an 87% chance of a Bank of Japan rate hike next month.

In other currency markets, the Canadian dollar remained steady against the greenback. The euro traded at $1.1655, and the British pound held at $1.3592. The Australian dollar saw a slight increase, while New Zealand's kiwi also gained ground. In the cryptocurrency space, Bitcoin and Ether experienced modest price increases.

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Still, Yokoo added that active yen buying is likely to remain limited with Himino and Warsh due to speak.