Dollar Rises After Powell Signals Aggressive Rate Hikes

(RTTNews) - After exhibiting weakness in the Asian session, the U.S. dollar climbed higher Thursday morning after Federal Reserve Chair Jerome Powell reiterated the central bank's commitment to aggressively fighting inflation.

"We need to act now, forthrightly, strongly as we have been doing," Powell said during a Q&A session at the Cato Institute's 40th Annual Monetary Conference. "And we have to keep at it until the job is done."

Powell also once again warned about the dangers of allowing elevated prices to become entrenched, noting the Fed has a "responsibility" to bring inflation back down to 2 percent.

"The longer inflation remains well above target, the greater the risk the public does begin to see higher inflation as the norm, and that has the capacity to raise the costs of getting inflation down," he said.

Powell's comments have reinforced expectations that the Fed will raise interest rates by another 75 basis points at its next meeting later this month.

CME Group's FedWatch Tool currently indicates an 86.0 percent chance of a 75 basis point rate hike at the September 20-21 meeting and just a 14.0 percent chance of a 50 basis point rate hike.

Meanwhile, the European Central Bank has raised its interest rates by a massive 75 basis points, the biggest hike ever in the single currency bloc's history, and signaled more tightening in the coming months as policymakers try to rein in runaway inflation in a bid to support a slowing economy.

"This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will support a timely return of inflation to our two percent medium-term target," ECB President Christine Lagarde said Thursday.

The ECB assessed that inflation remains far too high and is likely to stay above its 2 percent target for an extended period.

The central bank now expects inflation to average 8.1% this year, 5.5% next year and 2.3% in 2024. The ECB Staff now expects the economy to grow by 3.1% this year, 0.9% next year and 1.9% in 2024.

The dollar index, which was down at 109.33 in the European session, climbed to 110.24 after Powell's speech at the Cato Institute's monetary policy conference.

The index later dropped to 109.65, down 0.17% from the previous close.

Against the Euro, the dollar firmed to $0.9934 but pared gains as the day progressed and was last seen hovering at $1.0000 a little while ago.

The dollar remains strong against Pound Sterling at $1.1499 despite having eased from $1.1461.

Against the Japanese currency, the dollar is up, fetching 144.11 yen a unit, compared with 143.75 yen on Wednesday.