FOREX-Dollar recoups some losses as focus shifts to Fed remarks at Jackson Hole

The U.S. dollar showed signs of recovering some of last week's losses on Thursday as investors awaited signals on the Federal Reserve's policy path at the Jackson Hole symposium, following data that showed inflation remained stickier than economists had anticipated.

Data in the previous session ‌showed inflation rose more than expected in July, aiding expectations that interest rates could stay restrictive through the end of this year. Another report reiterated that the economy grew 1.5% in the second quarter. The euro was flat against the dollar at $1.1652, while the British pound dipped 0.08% to $1.3587. The yen was largely steady at 159.35 per dollar as traders also digested a speech by the Bank ‌of Japan's deputy governor.

The U.S. currency was near a one-week high versus its three counterparts. The dollar index, which measures the greenback's move against a basket of six currencies, ‌was at 99.158, up about 0.3% this week, following last week's 0.8% drop. "The big support for the dollar here is that the U.S. economy continues to outpace that of other major economies," said Elias Haddad, global head of markets strategy at Brown Brothers Harriman, adding that he expects U.S. rates to stay unchanged for the rest of the year, contrary to market pricing.

Traders are pricing in no change to borrowing costs in September but see a 70% ⁠chance that ​the Fed will hike interest rates by at least ⁠25 basis points by December as Middle East tensions keep oil prices elevated. However, analysts said that no rate hikes this year from the central bank could limit the dollar's gains. "I don't expect the dollar to make new ⁠highs, because of the risk of a more dovish Fed repricing and the lack of U.S. fiscal credibility are two big headwinds."

FISCAL CONCERNS AN OVERHANG Currency and bond markets were still recovering from the Treasury's attempt ​last week to limit a rise in long-term borrowing costs through increased long-term bond buybacks.

It revived dollar debasement chatter on soaring debt concerns and government intervention in markets, ⁠as reflected in bitcoin's 25% gain this month to $78,853.88. The spotlight will now be on the Jackson Hole symposium starting later in the day, where Chairman Kevin Warsh's remarks on Friday will be closely monitored for any hints on both ⁠the Treasury's ​latest shift, and monetary policy. Weekly jobless claims data on Thursday could also offer markets clues.

Traders were also keen on rate hike clues elsewhere. Earlier on Thursday, BOJ Deputy Governor Ryozo Himino said timely rate hikes would help avoid an inflation spike that could force abrupt tightening later, but stopped short of signalling an imminent rate hike. "He did express concern about ⁠upside risks to prices ... that has likely led markets to conclude that the remarks were not especially dovish," said Sho Suzuki, a market analyst at Matsui Securities. "However, the absence of a ⁠clear signal means there is some chance the yen ⁠could come under renewed downward pressure."

The yen has cut some gains since the U.S.-Japanese intervention in currency markets last month. The Canadian dollar held steady at C$1.3885 per dollar. U.S. President Donald Trump said on Wednesday it was "time to teach Canada you can't do this anymore," ‌just days after trade talks between ‌the countries broke down.