The U.S. dollar remained close to a one-week high on Thursday, holding onto recent gains after stronger-than-expected inflation data reinforced expectations that the Federal Reserve could keep interest rates elevated.
The Dollar Spot Index was little changed at 99.17, after rising around 0.3% in the previous session.
Investors remain cautious ahead of key central bank speeches at the Jackson Hole Economic Policy Symposium, limiting demand for large directional positions in the foreign exchange market.
Sticky PCE Inflation Supports the U.S. Dollar
The latest Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation measure, provided fresh support for the dollar.
Headline PCE inflation increased 3.7% year over year in July, unchanged from June but slightly above market expectations of 3.6%.
On a monthly basis, prices rose 0.2%, compared with forecasts for a 0.1% increase.
Core PCE, which excludes more volatile food and energy prices, came in at 3.3% year over year, matching expectations.
However, the stronger headline figure suggested that inflationary pressure remains persistent across the U.S. economy.
Fed Rate-Hike Expectations Remain Alive
The latest inflation figures have reduced expectations for aggressive monetary easing from the Federal Reserve.
Futures markets continue to price in roughly a 60% chance of another 25-basis-point interest rate increase before the end of the year.
These expectations are helping keep U.S. Treasury yields supported and are making it more difficult for dollar bears to push the currency significantly lower.
At the same time, concerns over growing U.S. government debt and fiscal pressures may limit the potential for a much stronger dollar rally.
As a result, major currency pairs remain relatively contained while traders wait for clearer signals from central bankers.
Bank of Korea Rate Hike Lifts the Won
The South Korean won strengthened by around 0.3% to 1,381 after the Bank of Korea raised interest rates for the second consecutive meeting.
The central bank increased its benchmark rate by 25 basis points to 3.00%.
It also raised its 2026 economic growth forecast to 3.3% from 2.6% and indicated that rates could reach 3.25% by the end of the year.
The more hawkish outlook helped support the won by improving its relative yield appeal.
Euro Remains Under Pressure Near One-Week Low
The euro remained near a one-week low around $1.1600 against the U.S. dollar.
European Central Bank Executive Board member Isabel Schnabel recently suggested that borrowing costs across the Eurozone may need to rise further.
Despite the hawkish comments, the euro struggled to gain momentum as investors remained concerned about economic growth across Europe.
These broader economic worries continued to limit the currency’s upside potential.
Australian Dollar Holds Near Recent Highs
The Australian dollar remained close to its strongest level since early June, trading around $0.7180.
The currency has benefited from stronger-than-expected Australian inflation data for July.
The latest CPI figures encouraged traders to increase expectations for another Reserve Bank of Australia rate hike in 2026.
Higher expected interest rates can increase the attractiveness of a currency to international investors, helping support the Australian dollar.
Japanese Yen Steady as BOJ Rate Expectations Build
The Japanese yen traded close to unchanged at around 159.36 per U.S. dollar.
Comments from Bank of Japan Deputy Governor Ryozo Himino helped keep expectations of another interest rate increase alive.
Himino suggested that timely monetary policy adjustments could help prevent inflation from accelerating too sharply.
The remarks supported speculation that the Bank of Japan could raise rates in September, helping prevent the yen from weakening further toward previous intervention levels.
Jackson Hole Takes Center Stage
With the latest PCE inflation report now absorbed by markets, investor attention is shifting toward the Jackson Hole Economic Policy Symposium.
Federal Reserve Chair Kevin Warsh is scheduled to deliver a keynote address on Friday.
Currency traders will closely monitor his comments for clues about the Fed’s next policy move.
The key question is whether policymakers will become more concerned about slowing economic growth or continue prioritizing the fight against persistent inflation.
Any strong signal toward further tightening could support the U.S. dollar, while a more cautious tone could revive expectations for easier monetary policy.
For now, the dollar remains supported near its recent highs as markets wait for clearer guidance from the Federal Reserve.
