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Dollar Index: Weekly Analysis & Fundamental Outlook

The dollar dipped against the euro on Friday but gained against the yen as investors evaluated comments by Federal Reserve Chair Jerome Powell that the central bank could hike rates again if inflation remains above its target. Powell and other Fed officials said on Thursday that they are still not sure that interest rates are high enough to finish the battle with inflation, with Powell saying that the Fed may get further help in taming price increases from improvements in the supply of goods, services and labor. Markets are looking for “the ray of sunshine” that the Fed is done hiking rates, even though Powell since Jackson Hole has been clear that it will depend on data as it comes in, said Lou Brien, market strategist at DRW Trading in Chicago. “Yesterday was another one of those occasions where Powell reminded that we have to take care of inflation, we don’t know that we’ve done enough yet – we will know as the data unfolds but we might have to do more if the data doesn’t unfold as we anticipate,” he said. Consumer price inflation and retail sales data due next week are expected to offer the next clues on whether further rate increases are likely.

The dollar briefly gained on Friday after a survey showed that U.S. consumer sentiment fell for a fourth straight month in November, and households’ expectations for inflation rose again, with their medium-term outlook for price pressures shooting to the highest in more than a dozen years. The dollar tumbled last week after Powell was interpreted as striking a dovish tone after the Fed’s two-day meeting, with softer-then-expected jobs data on Friday adding to a belief that the Fed has finished hiking interest rates.

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