US Dollar Strengthens on Fed Vice Chair Clarida’s Hawkish Comments
Early on Thursday, the US dollar is showing signs of reviving its strength after Fed officials offered optimistic hints that they would like to consider tightening the ultra-loose monetary policy sooner than initially planned. At the time of writing, the US dollar index DXY is trading at around 92.29.
During the previous session, Fed Vice Chair Richard Clarida boosted investor confidence in the greenback when he shared that economic conditions could turn favorable by as soon as late next year for the US central bank to overturn its dovish outlook. His comments indicated that a rate hike could come as soon as early 2023, sooner than initial estimates, and making the Fed one of the first among the major central banks to start turning hawkish.
Clarida made these comments while speaking at a webcast hosted by the Peterson Institute for International Economics, adding, “Commencing policy normalization in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework.” He also offered his thoughts on tapering of asset purchases, expecting it to begin by the end of this year.
These insights turned investors away from other leading currencies and towards the US dollar again, driving some strength in it after it moved cautiously ahead of the NFP report’s release. The Euro, meanwhile, fell back close to the $1.18 level after attempting to rise above it earlier on Wednesday.
The US dollar failed to receive any support from the ADP employment report which came in weaker than forecast. However, the reserve currency did get a boost after the US non-manufacturing PMI reading for July soared to a record high.
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