U.S. dollar gains as Fed doubles down on tightening stance; euro falls

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The U.S. dollar rose on Thursday after Federal Reserve Chair Jerome Powell reiterated that it will continue to raise interest rates in order to tame surging inflation and warned against prematurely loosening monetary policy.

Across the Atlantic, the European Central Bank raised interest rates by a record 75 basis points, taking the deposit rate above 0% for the first time since 2012. The euro initially went above parity against the dollar, but has since weakened in the wake of Powell's comments.

Fed officials are soon due to enter a blackout period prior to the central bank's Sept. 20-21 meeting.

In remarks at a Cato Institute conference, Powell said the Fed needs to keep going until it gets the job done and is "strongly committed" to bringing inflation down. (Full Story)

"Once again, Powell reiterates the Fed's job, that they're mandated by Congress to maintain price stability and employment," said Randy Frederick, managing director of trading and derivatives, at Charles Schwab in Austin, Texas.

"It seems his primary concern is price stability, and he realizes that that could have a negative impact on employment, but given the incredibly low levels of unemployment, he's essentially saying there's room for unemployment to go up without causing a major problem," he added.

U.S. rate futures have priced in an 87% chance the Fed will hike by another 75 basis points at this month's meeting, which would increase the fed funds rate to 3.0% to 3.25%. FEDWATCH

In midmorning trading, the dollar rose 0.3% to 144.13 yen JPY=EBS. On Tuesday, it surged to a 24-year peak of 144.99 yen.

The dollar index was up 0.2% at 109.90 .DXY, after soaring to its strongest level since June 2002 the day before.

The euro, on the other hand, dropped 0.4% to $0.9966 EUR=EBS.

The ECB said it expected to continue raising rates to dampen demand, prioritizing the fight against inflation even as the euro zone heads toward a likely winter recession. (Full Story)

"We have more journey to cover going forward," ECB President Christine Lagarde told a news conference, adding that there had been unanimous agreement among policymakers about the need for a 75-basis point hike to "frontload" the move toward rates consistent with bringing inflation to its 2% mid-term target.

The yen, on the other hand, has been a particular victim of recent dollar strength, partly due to its sensitivity to rising long-term U.S. yields as hawkish Fed bets ramped up and the Bank of Japan remains the holdout dovish central bank.

Japan is ready to take action in the currency market and won't rule out any options to address "clearly excessive volatility" seen in recent yen moves, the country's top currency diplomat said after a meeting between the Bank of Japan, Ministry of Finance and Financial Services Agency.