Fed official Austan Goolsbee signaled a hawkish shift on Wednesday, citing persistent services inflation and warning that all policy options remain on the table to reach the central bank's target.
Fed's Goolsbee called the latest CPI 'borderline disturbing', flagged services inflation 'not coming down' and said 'everything is always on the table' to get inflation to target. This hawkish shift, reflected in an 8/10 FXS Speechtracker score above the 6.8 average, supports the Dollar against lower-yielding peers.
A hawkish Fed message from Goolsbee keeps rate-hike optionality alive and supports a higher-for-longer US rate outlook, which typically weighs on EUR/USD against the strengthened Dollar. The day's table shows EUR barely changed versus USD so far, meaning the move would hinge on markets pricing in the hawkish tone.
The article notes the US Dollar was the strongest against the Japanese Yen today, and Goolsbee's hawkish 'higher-for-longer' message on rates typically underpins the Dollar against lower-yielding peers like the Yen. Persistent US inflation concerns keep the rate differential supportive for USD/JPY.
A Fed official calling CPI 'borderline disturbing' and stressing that 'everything is always on the table' keeps expectations of prolonged restrictive policy alive, a backdrop that typically pushes Treasury yields higher. The hawkish FXS Fed Sentiment Index reading of 145.61 reinforces this shift.
Chicago Fed President Austan Goolsbee warned Wednesday that persistent services inflation is a real issue, describing recent CPI data as borderline disturbing. His hawkish commentary, which pushed the FXS Fed Sentiment Index to 145.61, suggests that interest rates may remain restrictive for longer to prevent inflation expectations from becoming entrenched.
Higher rates expectations tend to strengthen the Dollar against lower-yielding currencies.
Higher rates expectations tend to strengthen the Dollar against lower-yielding currencies.
Hawkish Fed remarks support the US rate outlook relative to Japan's, and the article notes the Dollar was already the strongest against the Yen today.
If officials signal rates may stay higher for longer due to persistent inflation, bond yields generally tend to rise as markets price in less imminent rate cuts.