Dollar Slips Ahead of FOMC Minutes

The dollar index held around 100.3 on Tuesday, staying near its highest level since late July as hawkish remarks from Federal Reserve officials reinforced expectations for further interest rate hikes. On Monday, Chicago Fed President Austan Goolsbee said the central bank cannot overlook repeated and persistent supply shocks, while St. Louis Fed President Alberto Musalem said additional rate increases may be necessary to achieve the Fed’s inflation target. Investors now await speeches from Fed officials John Williams and Tom Barkin later today. Last week, the Fed raised interest rates for the first time in three years and signaled further tightening later this year to curb inflation. Meanwhile, oil prices fell for four straight sessions amid increased diplomatic efforts to end the Middle East conflict and signs of continued energy flows from the region, easing inflation concerns. Traders also remained alert for possible currency intervention to support the yen.

The dollar index edged up to 100.3 on Monday, reaching its highest level in almost three months and extending last week’s gain of nearly 1.1%, as the greenback continued to benefit from a more hawkish stance from the Federal Reserve. The central bank raised the federal funds rate by 25bps last week and is expected to deliver another hike by year-end. Chicago Fed President Goolsbee said he remains open to the possibility that inflation will resume its decline towards the 2% target, but warned that interest rates may need to rise if that fails to materialise. Meanwhile, Minneapolis Fed President Kashkari said yesterday that inflation remains too high across all sectors of the economy, rather than being driven solely by oil prices. Oil prices however, fell for a fourth consecutive session amid hopes that diplomatic efforts could lead to a resolution to the conflict with Iran. The greenback was broadly higher against the yen, euro and pound.

The dollar index steadied around 100.2 on Monday after surging last week, with investors awaiting several appearances by Federal Reserve officials this week for further clues on the outlook for monetary policy. On Sunday, Minneapolis Fed President Neel Kashkari said inflation remains too high and that price pressures have spread beyond the initial oil-price shock linked to the Iran war. Chicago Fed President Austan Goolsbee is scheduled to speak later Monday, followed by New York Fed President John Williams on Tuesday. Last week, the dollar index climbed more than 1% after the Fed raised interest rates and signaled at least one additional hike this year, while Chair Warsh reiterated the central bank’s commitment to bringing inflation under control. The Bank of Japan also raised rates as expected, although two policymakers dissented, suggesting the central bank may move more cautiously with further increases than previously anticipated and weighing on the yen.