LONDON, May 18 — The US dollar bounced back today, a day after its biggest daily loss in more than two months, as US Federal Reserve chief Jerome Powell struck a more hawkish tone as the central bank battles to rein in surging inflation.

Powell pledged that the US central bank would ratchet up interest rates as high as needed, including taking rates above neutral, to kill a surge in inflation that he said threatened the foundation of the economy.

The neutral rate is the level at which economic activity is neither simulated nor constrained.

“It’s a strong reminder to the market that the Federal Reserve is going to be hiking interest rates, probably at a very accelerated pace, in order to regain their credibility on the inflation front,” said Jane Foley, head of FX at Rabobank.

“The hawkish Fed is the reason why sentiment this morning looks a little bit more fragile than it did yesterday.”

At 0810 GMT, the US dollar index was up 0.3 per cent at 103.59, after earlier touching a two-week low following Tuesday’s 0.9 per cent drop.

The euro slipped 0.3 per cent to US$1.0516 (RM4.62), reversing an earlier rise to a one-week high, a day after European Central Bank policymaker Klaas Knot said a 50 basis point rate increase in July was possible if inflation broadens.

Knot is one of the more hawkish ECB members, Commerzbank analysts noted, adding that his view did not necessarily reflect the majority view on the ECB board.

“Nonetheless, by making this comment Knot opens up a new line of attack for the ECB hawks,” Commerzbank analyst Ulrich Leuchtmann said in a note.

Sterling fell 0.7 per cent to US$1.2406 as data showing British inflation surged 9 per cent last month to its highest annual rate since 1982 piled pressure on policymakers to help households facing a worsening cost-of-living crisis.

The Australian dollar fell 0.3 per cent to US$0.70075 as Australian wage growth ticked up by only a fraction last quarter, leading investors to scale back bets on larger increases in interest rates.

Figures from the Australian Bureau of Statistics today showed its wage price index (WPI) rose 0.7 per cent in the March quarter, missing forecasts for a 0.8 per cent increase.

The yen rose 0.1 per cent to 129.14 per dollar, holding steady just above the two-decade low hit last week.

Cryptocurrency markets were fairly quiet after last week’s turmoil. Bitcoin slipped about 2 per cent and was last a fraction below US$30,000. Ether was holding above US$2,000 but was still down 2.9 per cent. 

 - Reuters