The dollar dropped on Thursday after Federal Reserve Chair Jerome Powell was interpreted as being generally dovish in comments made at an economic forum, even as he warned that the U.S. central bank could raise interest rates again.<\/p>\n
The U.S. economy’s strength and continued tight labor markets could warrant further rate increases, Powell said. But he also noted that recent market-driven increases in bond yields have helped to “significantly” tighten overall financial conditions.<\/p>\n
The comments were \u201cmarginally more dovish, I guess, but he was pretty careful to leave the door open to more tightening if the economic circumstances warrant that. It was a pretty even-handed message, I think,\u201d said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.<\/p>\n
Several Fed officials in recent weeks have noted the impact of rising Treasury yields. The benchmark 10-year yield reached a 16-year high of 4.996% on Thursday.<\/p>\n
\u201cFinancial conditions are tightening, there\u2019s no getting around that. It moves the needle towards the Fed doing less rather than more,\u201d Osborne said.<\/p>\n
Markets expect the Fed to hold rates at current levels for the foreseeable future, but are pricing in some probability of an additional increase.<\/p>\n
Fed funds futures imply a 30% probability the Fed will raise rates in December, down from 39% before Powell’s comments, and no chance of a hike in November, according to the CME Group\u2019s FedWatch Tool.<\/p>\n