Dollar gains before key Powell speech at Jackson Hole on Friday
Traders ramped up bets on a cut at the Fed's September 16-17 meeting after an unexpectedly weak jobs report for July. The risk of higher inflation as President Donald Trump's administration enacts new trade tariffs, however, remains a wild card that is making some policymakers hesitant to ease.
The Fed's Jackson Hole theme this year is 'Labor Markets in Transition,' and 'I guess it depends on how much (Powell) wants to lean on cracks in the labor market,' said Eric Theoret, FX strategist at Scotiabank in Toronto.
'Whether it's the payrolls and the revisions, or whether it's the claims that continue to climb higher, there is a narrative there that he can definitely push on,' Theoret said.
The dollar briefly pared gains on Thursday after data showed that the number of Americans filing new applications for jobless benefits rose by the most in about three months last week.
It later added to gains after a separate report showed that U.S. business activity picked up pace in August, led by a resurgent manufacturing sector that saw the strongest growth in orders in 18 months.
Powell may hesitate to signal a rate cut with data for August still due before the September session.
Ultimately, 'with the market pricing in two cuts at the end of the year, I think we need something big in either direction to really shift the market off that course,' said Theoret.
Fed funds futures traders are currently pricing in 77% odds of a September cut, and 51 basis points in cuts by year-end.
Atlanta Fed President Raphael Bostic said on Thursday that he still thinks the U.S. central bank can cut its interest rate target once this year, while noting there's a lot of uncertainty around that view as the economy undergoes considerable change.
Kansas City Fed President Jeffrey Schmid said there seems no rush to cut interest rates, with inflation still above the central bank's 2% target and the labor market still in solid shape.
The dollar index , which measures the greenback against a basket of currencies including the yen and the euro,
was last up 0.27% on the day at 98.50, with the euro down 0.26% at $1.1618.
The Japanese yen weakened 0.38% against the greenback to 147.9 per dollar. Sterling weakened 0.2% to $1.343.
The United States and the European Union on Thursday locked in a framework trade deal reached last month that includes a 15% U.S. tariff on most EU imports, including autos, pharmaceuticals, semiconductors and lumber.
In cryptocurrencies, bitcoin fell 0.62% to $113,718.
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