USD fell against other major currencies in the European session on Thursday, as the latest comments of the Federal Reserve’s Chair Powell and CPI report confirmed what investors had already priced in.
The U.S. Dollar Index (DXY), measuring the U.S. currency's value relative to a basket of foreign currencies, dropped 0.11% to 94.81.
The official data showed on Wednesday that the U.S. headline consumer price index (CPI) jumped 7.0% y/y in December, marking the highest rate of inflation since June 1982. The hot inflation supports the case for a March interest rate increase by the Fed - the first of three hikes projected by its policymakers last month.
During his renomination hearing, Fed’s Chair Jerome Powell stated that the U.S. central bank will use all its tools “to prevent higher inflation from becoming entrenched”. He also said that he thinks the central bank’s asset purchases will end in March, interest rate hikes will be made over the course of 2022, and the reduction of the balance sheet will start later in the year. Powell, however, added that the Fed’s policymakers have not decided on a timeline for any of the normalization processes yet.
However, St. Louis Federal Reserve Bank James Bullard suggested that, given high inflation, there might be four interest rate hikes this year.