After more Fed comments that were more hawkish, the U.S. dollar edged up in European early trade Wednesday. However, the euro remained below parity.
The Dollar Index which tracks the greenback in relation to six currencies traded 0.1% higher at 108.623.
Minneapolis Federal Reserve Bank President Neel Kazhkari made the most recent comment about the importance of the central banking to curb inflation above all else at a gathering held in Minneapolis on Tuesday.
Kashkari stated that it was clear that the Fed must tighten its monetary policy. “When inflation reaches 8% or 9.9%, we run the danger of not anchoring inflation expectations which could lead to very poor outcomes.”
Fed chair Jerome Powell will speak at the Jackson Hole Symposium, Wyoming on Friday. He is widely expected to maintain his hawkish antiinflation tone.
EUR/USD dropped 0.2% to 0.9952. The euro fell more than 12% against US Dollars this year, putting it below parity for only the second time in 20 years.
Eurozone business activity declined for the second consecutive month in August, data from Tuesday showed. This was weighed by benchmark gasoline prices tripled in just over two months.
Because of Russia’s dependence on imports, Europe and Germany are particularly vulnerable. Already, gas supplies have been cut and additional cuts could put more stress on the economies of the region.
Analysts at ING stated that the PMIs “all but confirmed market concerns about the toxic mixture of high energy prices, slowing global demand, and high energy prices,” in a note. “A drop of 0.9800 is, in our opinion, more likely than a sustained recovery over parity in the short term.”
GBP/USD fell 0.1% to 1.1817 after U.K. PMI data indicated a slowdown of economic activity.
“We see downside risk for cable as yesterday’s dollar drop may not be unwound further with 1.16/1.17 remaining bias for this week,” said ING.
USD/JPY climbed to 136.81. USD/CNY rose 0.4% at 6.8641. This is close to a two-year high, as news of possible power cuts in Shanghai’s industrial hub Shanghai, weighed heavily on the yuan.
This year, the country is experiencing a severe heatwave that has caused some riverbeds to dry up and affected regions that depend on hydroelectric power. It also adds more headwinds for manufacturing activity following a series of COVID lockdowns.
