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A slew of Fed speakers keeps the doves grounded and dollar bears in hibernation

The US dollar and yields have rallied on Thursday as the hawks continue to circle above 2051 Constitution Ave. The DXY index, which measures the greenback vs. a basket of major currencies hit a three-week high on Thursday as investors reevaluated Wednesday's minutes from the Federal Reserve’s July meeting as more hawkish than originally interpreted.

Additionally, Fed speakers on Thursday, including San Francisco Federal Reserve Bank President Mary Daly, Kansas City Federal Reserve President Esther George, CEO of the Federal Reserve Bank of St. Louis Jim Bullard and finally, president of the Minneapolis Federal Reserve Neel Kashkari have all been heard signing from the same hawkish hymn sheet. 

The most hawkish of the chorus of Fed officials on Thursday was Bullard who expressed a desire for a 75bp hike at September's meeting and added he isn’t ready to say the economy has seen the worst of the inflation surge.

“We should continue to move expeditiously to a level of the policy rate that will put significant downward pressure on inflation” and “I don’t really see why you want to drag out interest rate increases into next year,” Mr. Bullard said in a Wall Street Journal interview.

More recently, we have heard from Kahkari, who has turned far more hawkish in recent weeks, especially when compared to his uber dovish pre-pandemic tone, expressing his concerns for runaway inflation amongst his worries of an imminent recession. 

In prior speeches, Kashkari said that he wants to raise the central bank’s benchmark interest rate to 3.9% by the end of this year, and to 4.4% by the end of 2023. That made him the most hawkish participant on the Fed’s rate-setting Federal Open Market Committee at the time, according to the so-called “dot plot” of interest-rate projections published after the central bank’s June policy meeting. On Thursday, he repeated that the Fed has more work to do to get inflation down and that the central bank needs to get inflation down urgently.

At the start of the New York session, Daly had crossed the wires and said in an interview with CNN  it was way too early to declare victory on inflation and that said either a 50 basis point or a 75 basis points hike would be appropriate. This was pushing back against the market's interpretation of the minutes yesterday of just a 50bp hike where the futures markets were pricing in a 60% chance thereof. Her comments ignited the bullish tinder under the US dollar that was rising 0.12% on the day at 106.78 which has since gone on to print a 107.560 to trade some 0.8% higher. 

Meanwhile, the US dollar is much higher, with the DXY approaching an area of imbalance that guards a resistance at 108.03 ahead of 109.29:

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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