The U.S. dollar edged higher in early European trading Friday, but was on track for healthy weekly gains after Fed Chairman Jerome Powell raised the possibility of more interest rate hikes to fight inflation.
As of 03:20 ET (07:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 105.727 and on track for a gain of nearly 1% this week.
Hawkish Powell Boosts Dollar
The dollar received a boost after Fed chief Jerome Powell warned on Thursday that the U.S. central bank is prepared to raise interest rates further to fight inflation if necessary.
“The Fed is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time,” Powell said.
“We are not confident that we have achieved such a stance. If it becomes appropriate to tighten policy further, we will not hesitate to do so.”
These comments followed similar remarks from a number of other Fed officials and came a week after the U.S. central bank left interest rates unchanged and raised expectations that rates may have peaked, sending the dollar tumbling in the aftermath.
Traders still see a high probability that the Fed will hold rates steady when it meets for the final time this year in December, but some are now pricing in the possibility of a rate hike early next year.
Lagarde speech, UK GDP in focus
The European Central Bank also held rates steady at its meeting in late October, and President Christine Lagarde is scheduled to speak later in the session.
EUR/USD edged higher to 1.0667, on track to lose 0.6% this week, as the latest Eurozone economic data released earlier in the week suggested that the chances of a recession in the region by the end of the year are increasing.
GBP/USD rose to 1.2224 after data released early Friday showed that growth in the U.K. stagnated in the third quarter, although gross domestic product rose 0.2% month-on-month in September, slightly better than the flat figure expected.
The pair is still on track for a weekly loss of around 1.2%.
Traders Watch for Yen Intervention
In Asia, the USD/JPY was up 0.1% at 151.34, pushing past the 151 level and raising expectations for intervention in the currency markets by the Japanese authorities, as a dovish Bank of Japan contrasts sharply with the more hawkish tone of the Federal Reserve head.
USD/CNY rose 0.1% to 7.2930, with the Yuan weakening on growing concerns of an economic slowdown in China after a series of weak data for October.
AUD/USD slipped to 0.6362, with the pair on track for a loss of well over 2% this week after dovish signals from the Reserve Bank of Australia following its rate hike earlier this week.
