By Jaspreet Kalra and Ankur Banerjee
SINGAPORE (Reuters) -The U.S. dollar hovered near a two-week high against the euro and sterling on Friday as investors trimmed rate cut wagers ahead of an eagerly anticipated speech from Federal Reserve Chair Jerome Powell at the Jackson Hole symposium.
The euro and sterling touched their weakest levels since early August and were last down 0.1% each at $1.1597 and $1.34080, respectively.
While indications of weakness in the U.S. labour market had bolstered hopes of an reduction in borrowing costs next month, expectations have been tempered since by economic data flashing inflationary risks and cautious comments from Fed policymakers.
Traders are currently pricing in a 73% chance of a 25-basis-point rate cut in September, down from 85.4% a week earlier, CME’s FedWatch tool showed.
“The dollar has been reflecting the risk that he (Powell) could stick to his guns and become more cautious,” said Jane Foley, head of FX strategy at Rabobank.
The dollar index, which measures the U.S. currency against six rivals, was up 0.1% at 98.71, on course for a 0.9% rise in the week, snapping its two-week losing streak.
Fed officials appeared lukewarm on Thursday to the idea of a rate cut next month, setting the stage for Powell’s speech scheduled for 10 a.m. EDT (1400 GMT) at the annual Jackson Hole conference in Wyoming, which kicked off on Thursday.
Chicago Fed president Austan Goolsbee acknowledged the upcoming meeting is “live” and could bring a change in interest rate policy, although he noted mixed economic data and recent unexpectedly high inflation data gave him pause about the prospect of an imminent easing in interest rates.
“With another inflation and payrolls print still due before the September meeting, Powell has every reason to stay patient and keep optionality open,” said Charu Chanana, chief investment strategist at Saxo.
Analysts at BofA Global Research saw modest near-term upside potential for the dollar going into the Jackson Hole symposium but continued to hold an overall bearish outlook amid rising stagflation risks for the U.S. economy.
“The stagflationary environment, tariffs, and worries on Fed independence and US institutions should ultimately push down USD,” the analysts said in a note, raising their year-end euro forecast to $1.20, from up $1.17 earlier.
The single currency is up 12% over 2025 so far, benefiting from the dollar’s decline.
Elsewhere, the yen eased to 148.56 per dollar, and was poised for a 0.9% decline for the week.
Data showed core inflation in Japan slowed for a second straight month in July but stayed above the central bank’s 2% target, keeping alive expectations for a rate hike in the coming months.
Japanese 30-year government bond yields climbed to a fresh all-time peak on Friday, tracking a rise in U.S. Treasury yields.
The 30-year Treasury yield was at 4.9285% after rising 2 basis points on Thursday, while the 2-year Treasury yield, sensitive to interest rate expectations, steadied at 3.79% following a 5-basis-point rise in the previous session.
The Swedish krona and Norwegian crown were both down 0.2% against the dollar, while the Swiss franc was little changed at 0.8093.
(Reporting by Jaspreet Kalra and Ankur Banerjee; editing by Shri Navaratnam, Kim Coghill and Mark Heinrich)
