Peter Nurse

Investing.com. The U.S. currency edged down in European trading Friday morning, but it remained close to a 20 year high. Federal Reserve Chair Jerome Powell confirmed that there is a possibility for further interest rate hikes to reduce stubbornly high U.S. inflation. 

At 03:15 ET (0715 GMT), the, which measures the greenback’s performance against six currencies, declined 0.2% to 104.645 at 3:15 PM ET. This is just 0.2% below its overnight high of 104.92.

The dollar has been in demand for much of the year, with the Federal Reserve seen as one of the most aggressive of the world’s central banks in combating soaring inflation.

It raised its overnight benchmark interest rate 50 basis points last Wednesday, which was the biggest increase in 22 years. The Fed is likely to tighten monetary policy aggressively in the coming months.

“If the economy performs about as expected … it would be appropriate for there to be additional 50-basis point increases at the next two meetings,” said Powell in an interview with the Marketplace public radio program on Thursday.

However, he added that the Fed wasn’t “actively considering” a larger 75 basis-point increase, comments that have prompted some traders to dial back their long dollar positions. 

The yen gained 0.2% to 128.58, rising after falling overnight to a low of 127.50. This was due to some support from the Japanese yen, as it continued its decline from Monday’s peak of 3.203%.

The pair rose 0.2%, to 1.0398. It is still within reach of its 2017 low at 1.0340. A break would bring it down to its lowest level in almost 20 years. 

This is despite the fact that the ECB President joined the chorus of policymakers on Thursday calling for the central banking to raise interest rates. There are expectations it will do so in July.

“The EUR has blatantly struggled to draw any tangible benefits from the increasingly hawkish tone among ECB policymakers,” said analysts at ING, in a note, “which in our view boils down to the already quite aggressive tightening expectations (80-85 bp fully priced in by year-end) and lingering uncertainty around whether the ECB will be able to deliver many more hikes afterwards given the deteriorating economic outlook in the euro area.”

Also, the index rose 0.1% to 1.2209, slightly rebounding after dropping to an almost 2-year low during a previous session, after data indicated that the British economy had grown less than predicted in the first quarter.

It rose 0.2%, to 6.7989. The pressure on the Yuan after Beijing’s COVID-19 case numbers prompted officials to reject speculation that Beijing will lock down the capital.