Dollar fell as Fed reaffirmed not to raise interest rates

The U.S. dollar traded close to one-week lows on June 23. The currency fell after U.S. Fed officials, including Chair Jerome Powell, reaffirmed tighter monetary policy was still some way off.

Powell revealed the U.S. central bank’s aim to encourage a recovery of the job market. He also reaffirmed not to raise interest rates too quickly based only on the fear of coming inflation.

Meanwhile, a hawkish turn by Federal Reserve last week hit the market.

The American currency increased last week after the Fed surprised markets by signaling sooner rate hikes than anticipated.

However, policymakers have since then softened their stance. Powell and New York Fed President John Williams were warning the economic recovery needs more time before a tapering of stimulus and higher borrowing costs are appropriate.

Fed Chairman Jerome Powell acknowledged Tuesday that some inflation pressures are stronger and more persistent than he had anticipated. Moreover, he announced that it is very unlikely the U.S. will face 1970s-style inflation.

He continued to attribute most of the recent inflation surge to factors closely tied to the economic reopening.

Powell cited airline tickets, hotel prices, and lumber along with generally increasing consumer demand pumping up an economy. An economy faced substantial government-imposed restrictions in the early days of coronavirus a year ago.

He announced those factors should resolve themselves in the following months.

The American Dollar traded near its lowest level since June 17

The U.S. dollar was flat at 91.772 versus a basket of its rivals. It traded near its lowest level since June 17 and nearly a third below a two-month high reached last week.

Meanwhile, headline price inflation rose by 5% year over year in May, the highest in almost 13 years. It was prompted by a rise in used car prices and a slew of other goods that have seen growing demand as restrictions have loosened.

Additionally, the latest update on the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, comes Friday. The Dow Jones Industrial Average estimate is for a 3.4% year-over-year increase in May, higher than the 3.1% in April. Notably, if that estimate is correct, it would be the highest reading since April 1992.

Powell announced the economy was not likely to face the hyperinflation of the 1970s and early ’80s when inflation peaked above 10%.

Meanwhile, the Japanese yen was the notable loser against the dollar. Remarkably, data revealed factory activity grew at the slowest pace in four months in June, with output contracting fast.

The euro held steady at $1.19365.

In cryptocurrencies, the dominant cryptocurrency, Bitcoin, rose by almost 8% in the last 24 hours and traded at $33,973.73. Meanwhile, Ethereum, the second-biggest crypto, surged nearly 6% and hit $1,995.71.