Dollar falls as Powell sees little risk of inflation overheating

Traders work on the floor of the NYSE in New York

Traders work on the floor of the New York Stock Exchange in New York U.S

Elsewhere on currency markets the U.S. dollar were holding gains ahead of the annual Jackson Hole symposium of central bankers, where Fed boss Jerome Powell is due to speak later Friday. "If the strong growth in income and jobs continues, further gradual increases ... will likely be appropriate".

Powell said in his Jackson Hole speech: "The economy is strong".

Mazen Issa, senior FX strategist at TD Securities in NY, said Powell's remarks built on a stance seen in the minutes of the Fed's latest policy meeting released on Wednesday.

"Our job at the Fed is to make decisions on monetary policy and supervision without regard to political considerations, and I'm confident we'll continue to do that", Robert Kaplan, head of the Fed's Dallas regional bank, said in an interview with CNBC.

While unemployment is below the committee's longer-run estimate of a rate that corresponds with non-inflationary use of labor resources, "there does not seem to be an elevated risk of overheating".

The president previously upbraided Powell and the Fed via Twitter for raising rates while the economy is humming along.

It was not the first time he had struck out at Fed policy for not supporting faster economic growth but he went even further when he also declined to confirm his support for the central bank's independence, something that has the potential to worry financial markets.

But lately President Trump has entered the conversation, criticizing Fed Chairman Jerome Powell, a man he appointed, for continuing to raise the federal funds rate, which is now fluctuating between 1.75 and 2 percent. Policymakers' latest assessment of that rate was around 2.9 percent, roughly 1 percentage point above the current level of between 1.75 and 2.00 percent.

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The benchmark S&P 500 and the Nasdaq hit all-time highs after Powell's comments at an annual meeting of central bankers did little to change market expectations of an interest rate hike in September and perhaps again in December. Because policy doesn't influence the economy right away, Fed officials tend to set rates based on their midrange forecast.

The Fed's overnight lending rate is now in a range of 1.75 per cent to 2.00 per cent. "We are setting policy to do what monetary policy can do to support continued growth, a strong labour market and inflation near 2 per cent".

Since then the Fed has raised rates three times, and the gap has narrowed as longer-term rates have not risen in tandem with short-term rates.

Trump said that he had nominated Powell to lead the central bank because he expected him to keep interest rates low, according to local media reports.

"The dollar's reaction is a part of a narrative that was established earlier this week, one that we saw in the minutes, with respect to the Fed making progress toward neutral", Issa said. While the trade conflict between Washington and Beijing darkens the economic outlook, the supply versus demand position in oil markets remains relatively tight -especially because of the looming USA sanctions against Iran.

"Over the course of a long recovery, the US economy has strengthened substantially", Powell said.

Though Powell chose not to mention Trump's criticism, other Fed officials asserted that the president's complaints about rate hikes would have no effect on their policymaking.

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