Greenback nudges higher ahead of US inflation data; Aussie gains on rate bets

[LONDON/SINGAPORE] The dollar edged higher but remained range-bound against major peers on Wednesday (Aug 26) as investors awaited US inflation data that could set the tone ahead of the Jackson Hole symposium of central bankers later this week.

The most notable mover was the Australian dollar, which hit US$0.71865, its highest level in three months, after data showed the trimmed mean CPI gauge, the Reserve Bank of Australia’s preferred measure of cost-of-living pressures, rose at a faster-than-expected annual rate of 3.6 per cent.

It was last up 0.24 per cent, just below that level.

“With underlying inflation showing no signs of slowing, there’s still a risk that the RBA will deliver another rate hike over the coming months,” Capital Economics analysts wrote in a research note.

Aside from the Swiss franc, against which the dollar rose 0.3 per cent to 0.8036 francs, moves in the most traded currency pairs were muted ahead of a potentially pivotal few days for markets.

The dollar climbed 0.1 per cent against the Japanese yen to 158.95 yen, while sterling slipped 0.2 per cent to US$1.3624.

The euro was also a touch weaker at US$1.1664, shrugging off a Reuters report citing sources saying ECB policymakers are prepared to raise interest rates at their September meeting but have little appetite to signal further tightening.

Traders were focused on the release of July US personal consumption expenditures (PCE) data, ahead of Federal Reserve Chair Kevin Warsh’s keynote speech at Jackson Hole on Friday.

The conference, with its global audience and intense media coverage, offers Fed officials a high-profile platform to signal policy thinking or reinforce existing messages.

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PCE is the Fed’s preferred inflation gauge. Economists polled by Reuters expect core PCE, which ​excludes food and energy, to have risen 3.3 per cent in July from a year earlier, unchanged from ​June and well above the Fed’s 2 per cent target.

If forecasts prove correct, traders will look for clues from Warsh on whether further rate hikes may be needed to bring inflation back to target. Some analysts say the recent rise in long-dated Treasury yields suggests the Fed may need to do more.

Treasury Secretary Scott Bessent’s decision to intervene in the market in an attempt to lower bond yields has added another layer of complexity, though analysts do not expect a great deal of explanation from Warsh’s remarks.

“Normally, this would be an event awaited with great anticipation where the Fed would be prepared to lay out its future monetary policy strategy or even signal major policy regime shifts,” said Benoit Anne, senior managing director at MFS Investment Management.

“Perhaps not this time, however. Expectations are indeed running quite low.” He said that as Warsh had already announced a series of task forces to reshape how the central bank operates he is unlikely to front-run their outcome.

“Meanwhile, with forward guidance less prominent and the Fed’s reaction function unlikely to be discussed, this overall greatly limits the scope of topics that market participants may find interesting.”

The US dollar also rose 0.2 per cent against the Canadian dollar to C$1.387, extending gains into a third consecutive day after Ottawa announced retaliatory tariffs on about US$20 billion of US annual imports on Tuesday and rolled out support for businesses and workers after trade talks with Washington collapsed last week. REUTERS