Fed's Mester: Will need to tighten somewhat further to lower inflation

Eren Sengezer FXStreet

The Federal Reserve (Fed) will need to tighten the monetary policy "somewhat further" to lower inflation, Cleveland Fed President Loretta Mester said on Monday, per Reuters.

Additional takeaways

"Fed policy is less restrictive compared to history."

"Raising rates again will reduce risk of more action in future."

"Fed rate hikes have been moderating economic activity."

"Economy has proved stronger than expected."

"Supply chain disruptions have eased."

"Inflation is stubbornly high, stalled progress on core prices."

"Fed is closer to end of tightening campaign than its start."

"Core inflation gains too high and too broad based."

"Wage pressures remain too high to get inflation back to 2%."

"Demand for labor still outstripping supply."

"Business leaders fears of recession have declined."

Market reaction

The US Dollar Index edged slightly lower with the initial reaction to these comments and was last seen losing 0.1% on the day at 102.18.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

GBP/USD revisits 1.3530; Dollar pushes harder

GBP/USD adds to the weekly correction and recedes toward the 1.3530 zone on Friday. Indeed, Cable faces increasing selling pressure on the back of extra gains in the Greenback, particularly fuelled by Chair Warsh’s speech at the Jackson Hole Symposium and the US NFP Annual Revision (-79K).

EUR/USD breaches below 1.1600, multi-day lows

EUR/USD now accelerates its decline and retreats to seven-day troughs in the sub-1.1600 region at the end of the week. The pair’s pullback comes on the back of the strong rebound in the US Dollar after Chair Warsh delivered a hawkish message in Jackson Hole, while the US NFP Annual Revision came in at -79K.

Gold seems vulnerable above $4,450 as Fed hike bets, Iran risks support USD

Gold recovers slightly from a one-and-a-half-week low, touched during the Asian session on Monday, though any meaningful recovery seems elusive. Fed Chair Kevin Warsh’s Jackson Hole speech was perceived as hawkish, raising expectations for a September rate hike. Adding to this, fresh US strikes on Iran keep the geopolitical risk premium in play, which acts as a tailwind for the safe-haven US Dollar and should cap the bullion.

Week ahead: RBNZ and BoC decide on rates ahead of all-important US NFP

The US dollar staged a modest recovery this week, perhaps as traders decided to cover some of their short positions amid slightly stickier or in-line US PCE inflation numbers for July, confounding expectations of softer prints amid the softness revealed in the CPI data for the month.

CFTC Report: CAD short covering leads; Gold buying surges

The week in one sentence: speculative positioning shifted more constructively in the week to August 25. CAD short covering led the move, followed by a broad reduction in EUR shorts and renewed Gold buying. GBP and VIX positioning also improved, while JPY positioning deteriorated and WTI flows diverged from weaker prices.

Diesel’s record $100 warning: The oil shock hiding in plain sight

The Oil market may look calmer than it did a few months ago, but diesel is sending a very different message. The US diesel crack spread, the premium of ultra-low sulphur diesel futures over WTI, recently surged above $100 per barrel for the first time, reaching an intraday record of just over $102.00.