Dollar strengthens as Fed's Powell speaks, yen pressured

New York: The dollar index rose on Wednesday as Federal Reserve Chair Jerome Powell did not rule out the possibility of another rate hike by the central bank at its next meeting in July.

Powell, speaking at a European Central Bank (ECB) conference along with Bank of England Governor Andrew Bailey, ECB President Christine Lagarde and BOJ Governor Kazuo Ueda, noted that most central bankers still see two rate rises this year, and did not rule out the possibility of more rate hikes at its next policy meeting set for July 25-26.

Expectations for a 25 basis point hike at the July meeting moved up to 84.3% from 76.9% a day earlier, according to CME's FedWatch Tool.

"It’s not a big change. To me they are all reading from the same scripts from their recent central bank meetings," said Erik Bregar, director, FX & precious metals risk management, at Silver Gold Bull in Toronto.

The dollar index rose 0.566% at 103.080.

The yen, which has been under pressure as the Bank of Japan (BOJ) has been an outlier among global central banks in keeping a loose monetary policy, weakened to a fresh 7-month low of 144.57 per dollar. BOJ Governor Kazuo Ueda said the central bank would see a good reason to alter its monetary policy if it became "reasonably sure" inflation would start to re-accelerate into next year after a period of moderating.

Softness in the yen has prompted warnings from Japanese currency officials this week that the central bank could intervene to prop up the yen, something that last took place when it traded around 145 per dollar.

"The only thing kind of notable to me is Ueda’s lack of pushback on yen weakness, so if his position is that other G7 policies are the more dominant factor for yen weakness, he is really opening the door here to further weakness," said Bregar.

The Japanese yen weakened 0.32% at 144.51 per dollar while the euro fell 0.22% against the yen at 157.560 after earlier hitting a new 15-year high of 158.00.

Lagarde said the ECB is still not seeing enough evidence that underlying inflation has embarked on a downward path, while Bank of England Governor Andrew Bailey said it remained to be seen if financial markets are right about the interest rate increases they are expecting from the British central bank.

The euro was down 0.53% to $1.0901 while sterling was last trading at $1.2611, down 1.06% on the day.