Dollar gains with Fed expected to remain hawkish

Dollar gains with Fed expected to remain hawkish

* Graphic: World FX rates Link

By Karen Brettell

NEW YORK, Aug 24 (Reuters) - The dollar gained against a basket of currencies on Wednesday, holding near a 20-year high as investors waited for a Friday speech by the Federal Reserve Chairman for fresh clues on how aggressive the central bank will be in its battle against inflation.

Investors have pared back expectations that the Fed could tilt to a slower pace of rate hikes as inflation remains at 8.5% on an annual basis, well above the Fed's 2% target.

The focus of Jerome Powell's speech in Jackson Hole will be on to what extent an economic slowdown might alter the Fed’s pace of tightening, or if the need to tame inflation pressures will override other economic factors.

The dollar gained even after data on Wednesday showed that new orders for U.S.-made capital goods increased at a slower pace in July from the prior month, suggesting that business spending on equipment could struggle to rebound after contracting in the second quarter.

"The dollar's still well bid and I think that the market's concluding that these data are not going to change the Fed's position about what's going to happen next month," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

"While the market might be swinging back and forth between inflation and recession, the central banks aren't. They are focused, it seems to be nearly exclusively, on inflation," Chandler said.

Fed funds futures traders are pricing in a 59% chance that the Fed will hike rates by another 75 basis points at its September meeting, and a 41% probability of a 50 basis points increase. FEDWATCH

The dollar index =USD was last up 0.42% at 108.99, holding just below a 20-year high of 109.29 reached on July 14. The euro EUR=EBS was down 0.49% at $0.9919, after hitting a 20-year low of $0.99005 on Tuesday.

The greenback dipped on Tuesday after data showed U.S. private sector activity was weaker than expected in August while sales of new U.S. single-family homes plunged to a 6-1/2-year low in July.

The euro has been hurt by growth concerns as the region faces an energy crisis. Front-month Dutch gas TRNLTTFMc1 , the benchmark for Europe, rose again on Wednesday as the prospect of a halt to Russian gas supplies through the main Nord Stream 1 pipeline for three days kept investors on edge.

"The sharp jump in gas prices and the uncertainty about this going forward will continue to weigh on the euro for the time being," said DNB Markets FX analyst Ingvild Borgen Gjerd.

Meanwhile, cyclical currencies such as the Australian and New Zealand dollars were under pressure from fears of a global growth slowdown.

The Aussie AUD-D3 fell 0.62% to $0.6886 and the kiwi NZD=D3 slumped 0.72% to $0.6169.

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Currency bid prices at 9:43AM (1343 GMT) Description

RIC

Last

U.S. Close Pct Change

YTD Pct

High Bid

Low Bid

Previous

Change

Session

Dollar index

=USD

108.9900

108.5500

+0.42%

13.931%

+109.0500 +108.4900 Euro/Dollar

EUR=EBS

$0.9919

$0.9967

-0.49%

-12.76%

+$0.9972

+$0.9916 Dollar/Yen

JPY=EBS

137.0500

136.7500

+0.22%

+19.05%

+137.1450 +136.1750 Euro/Yen

EURJPY=

135.95

136.31

-0.26%

+4.32%

+136.3800 +135.5300 Dollar/Swiss

CHF=EBS

0.9678

0.9641

+0.37%

+6.08%

+0.9682

+0.9608 Sterling/Dollar GBP=D3

$1.1766

$1.1834

-0.57%

-13.00%

+$1.1837

+$1.1757 Dollar/Canadian CAD=D3

1.3010

1.2959

+0.42%

+2.93%

+1.3018

+1.2954 Aussie/Dollar

AUD=D3

$0.6886

$0.6929

-0.62%

-5.27%

+$0.6932

+$0.6880 Euro/Swiss

EURCHF=

0.9598

0.9607

-0.09%

-7.44%

+0.9614

+0.9559 Euro/Sterling

EURGBP=

0.8427

0.8422

+0.06%

+0.32%

+0.8439

+0.8409 NZ

NZD=D3

$0.6169

$0.6213

-0.72%

-9.88%

+$0.6218

+$0.6164 Dollar/Dollar

Dollar/Norway

NOK=D3

9.7095

9.7180

-0.03%

+10.28%

+9.7495

+9.6730 Euro/Norway

EURNOK=

9.6305

9.6825

-0.54%

-3.79%

+9.6997

+9.6099 Dollar/Sweden

SEK=

10.6585

10.6242

-0.19%

+18.20%

+10.6821

+10.6083 Euro/Sweden

EURSEK=

10.5739

10.5941

-0.19%

+3.32%

+10.6155

+10.5743


Additional reporting by Samuel Indyk in London; Editing by Kirsten Donovan