The US dollar edged up against a basket of currencies on Friday, after Federal Reserve Chair Jerome Powell said the Fed may need to raise interest rates further to ensure inflation is contained.
Powell, in a speech at an economic summit in Jackson Hole, Wyoming, said Fed policymakers would "proceed carefully as we decide whether to tighten further," but also made clear that the central bank has not yet concluded that its benchmark interest rate is high enough to be sure that inflation returns to the 2% target.
The U.S. dollar index – which measures the currency against six major counterparts – was up 0.32% at 104.41, its highest since June 1. The index is on course for its sixth straight week of gains, aided by signs of resilience in the U.S. economy that has bolstered the case for rates staying higher for longer.
"In making it clear that the Fed isn't yet seeing clear and conclusive evidence of a decline in price pressures … he kept the possibility of another rate hike firmly on the table," said Karl Schamotta, chief market strategist at Corpay in Toronto.
"Powell's words lacked the drama associated with previous speeches from (Former Fed Chair Ben) Bernanke and (former president of the European Central Bank, Mario) Draghi, and even fell short of the directness found in his own appearances, but we would argue this is a good thing – conditions remain too uncertain for black-and-white messaging, and markets should welcome a more gradualist and incremental approach at this point in the tightening cycle.
Interest rate futures tied to the Federal Reserve's policy rate slightly increased the chances of tightening by the U.S. central banks at both the November and December policy meetings after Powell's speech.
Both the euro and sterling have been hit this week by weak business activity data that has prompted investors to scale back bets on further rate hikes in the euro area and Britain.
The common currency has come under pressure as ECB policymakers are increasingly worried about weakening growth prospects and, while the debate is still open, momentum for a pause in its interest rate increases is building, Reuters reported, citing eight sources with direct knowledge of the discussion.
The mood among German businesses deteriorated more than expected in August, data showed, falling for the fourth month in a row and adding to fears that the economy may be heading for its second recession inside a year.
The euro was 0.38% lower against the dollar at $1.0769.
The yen remained under pressure as traders watched for any signs the Japanese government was ready to intervene to prop up the currency, as it did last year.
Against the yen, the dollar was up 0.52% to 146.59.
The British pound dropped to a 10-week low on Friday as investors reined in expectations of where they think the Bank of England's interest rate might peak after recent soft activity data. The pound was 0.36% lower at $1.25555, its lowest since June 13.
In cryptocurrencies, bitcoin fell 1.42% to $25,796, a 3-day low.
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