The dollar wobbled from a 12-week peak as traders weighed the U.S. monetary path after a lackluster set of jobs data sparked concerns about the pace of interest rate hikes. Treasuries rose, and the dollar weakened against the euro and the yen.
Investors were also digesting a speech by Fed Chair Jerome Powell at the annual Jackson Hole Economic Policy Symposium. In an eagerly awaited speech, Powell left open the possibility of further interest rate increases.
He said that while the economy and inflation are “close to our targets,” it may be necessary to continue raising rates to achieve those goals. But he added that the Fed will move with care at upcoming meetings. The next is in September. He added that the FOMC would likely not be inclined to raise rates at consecutive meetings as it had done in the past. This was a reference to the 1970s when the Fed quickly pivoted from fighting high unemployment to battling inflation and back again in what many economists call a policy of “stop-and-go.”
In his speech, Powell reiterated that the Fed’s target is two percent inflation. He said the central bank will closely monitor core inflation, which excludes volatile food and energy prices. And he emphasized the importance of continued growth in household spending, which is the engine that drives the overall economy.
Powell’s emphasis on data dependency allowed greenback buyers to pare recent gains ahead of crucial readings on payrolls, core inflation, and consumer spending later this week. Money market traders are laying about 50/50 odds for another 25 basis point Fed hike in November, after which the central bank is expected to begin cutting rates.
In other trading, the yen held firm against the dollar, and gold was slightly higher. The yen’s strength reflects growing anxiety that Japan will step into the market to support the currency, as it did last year when the dollar broke above 145 yen. Inflation data also indicated that Tokyo’s efforts to boost the economy via stimulus began taking effect.
In Asian trade, the dollar was flat against the yen and up against the euro and sterling. The euro held steady as investors awaited Wednesday’s latest batch of eurozone inflation data. The Eurozone economy is still struggling to shake off the impact of the eurozone debt crisis, which is weighing on sentiment. But the economy is growing faster than most other European economies. Inflation has remained low, unemployment has fallen, and economic output has increased. The latest eurozone GDP figures are expected to show that the eurozone’s economy grew by an annualized 2.1% in the second quarter of this year, up from 0.8% in the first three months. The eurozone is expected to grow by an annualized 1.5% in the third quarter.