On June 3rd, Cleveland Fed President Beth Hammack stated on Tuesday that if the currently high inflation pressures continue to intensify, the Federal Reserve may need to restart interest rate hikes soon. Addressing the Cleveland City Club, Hammack remarked, "Based on current data, I am more concerned about the increasing risk of persistently high inflation than about threats to full employment, while monetary policy may not yet be restrictive enough to bring inflation back to the 2% target."
"If we wait for conclusive evidence that high inflation has become entrenched, it could necessitate a larger and more costly policy adjustment," she noted. Hammack emphasized the importance of current inflation expectations, pointing out that if they rise further, "decisive action will be necessary" to ensure the public believes price pressures will eventually return to the Fed's target level.
Hammack added that, for now, "given the significant uncertainty in the economic outlook, holding rates steady is appropriate. But if recent trends persist, acting soon may be warranted."
In other news, Bank of England policymaker Megan Greene indicated that the case for raising interest rates is strengthening as the conflict in the Middle East continues. This suggests more officials may join the Bank's Chief Economist, Huw Pill, in calling for action to curb inflation. As one of the most hawkish members of the Bank of England, Greene stated it may be necessary to increase borrowing costs soon to prevent inflation expectations from becoming unanchored. She stressed that the speed of action is as important as the magnitude of rate hikes when confronting inflation threats.
Speaking at the University of Derby Business School, Greene said, "I believe the case for raising rates is strengthening as the conflict persists. I think it may be necessary to tighten monetary policy in the coming weeks or months."
Data to watch today includes the UK's final May SPGI Services PMI, the US May ADP Employment Change, the revised US April Durable Goods Orders monthly rate, the US April Factory Orders monthly rate, and the US May ISM Non-Manufacturing PMI.
US Dollar Index
The US Dollar Index consolidated in a narrow range yesterday, closing slightly higher. The index is currently trading around 99.20. Support from technical buying near the 99.00 level and hawkish comments from Fed officials, which fueled expectations for rate hikes, underpinned the currency. However, signs of easing tensions in the Middle East dampened safe-haven demand for the dollar, limiting its upside. Today, resistance is seen near 99.70, with support around 98.70.
Euro / US Dollar
The euro consolidated with a slight daily loss yesterday and is currently trading around 1.1630. The primary pressure came from a stronger US dollar, which gained on hawkish Fed commentary boosting rate hike expectations. Additionally, weaker-than-expected CPI data from the Eurozone during the session added some downward pressure. Nonetheless, expectations for interest rate hikes from the European Central Bank limited the pair's decline. Resistance is seen near 1.1700 today, with support around 1.1550.
British Pound / US Dollar
The British pound consolidated with a modest daily gain yesterday, currently trading around 1.3470. Support stemmed from diminished risk-aversion sentiment and hawkish remarks from a Bank of England official. However, gains were capped by a stronger US dollar and fading expectations for imminent Bank of England rate hikes. Resistance is anticipated near 1.3550 today, with support around 1.3400.
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