Dollar Weaker Following Commitment from Fed Members to Raise Rates

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After Federal Reserve policymakers restated their commitment to raising US interest rates more than markets presently anticipate, the dollar (USD) weakened on Friday but was still on track for its highest weekly gain in a month.

It decreased in value vs. the pound (GBP), which increased after a tumultuous day on Thursday in response to Britain’s budget for tax increases and spending reductions.

James Bullard, president of the St. Louis Fed, was the most recent Fed official to reject market expectations for a halt in interest rate increases, stating that even under dovish assumptions, the funds rate would need to increase from its current level of 3.75–4% to at least 5.5–5.25% in order to reduce inflation.

He claimed that more negative predictions would encourage it to rise above 7%. Money markets indicate that investors anticipate a 5% peak in US interest rates in June of next year.

The Dollar Remains Steady Against Other Counterparts

The euro (EUR) increased by 0.1% to 1.0356 against the dollar, while the pound increased by 0.3% to 1.1908. Both have reached multi-month highs versus the dollar ever since consumer inflation statistics revealed an easing of pricing pressures in the United States.

The dollar remained stable against the yen (JPY) at roughly 140.27, keeping the dollar index unchanged at 106.75. It has gained about 0.4% so far this week, reversing some of the 4% declines from last week, when a tiny understatement of US inflation caused one of the currency’s biggest weekly declines in decades.

Stronger-than-expected US retail sales data released earlier this week also dispelled rumors of a slowdown in hikes because it appeared to indicate consumers were still in the mood to spend.

Meanwhile, consumer prices in Japan are rising at their fastest rate in forty years, according to data, which may put pressure on policymakers to abandon their ultra-accommodative monetary policies. However, there was little immediate movement in the yen.

Data released on Friday revealed that even while inflation reached a 41-year high of 11.1% in October, British retail sales only partially recovered from that low.

While the New Zealand dollar (NZD) was poised for its sixth weekly gain, increasing 0.6% to 0.6168 ahead of next week’s central bank meeting where rates may increase by as much as 75 basis points, the Australian dollar (AUD) increased by 0.3% to 0.6708, staying near its best level in two months.