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.

Market Context

The dollar index, which measures the greenback's move against a basket of six currencies, was trading at 99.158, up about 0.3% for the week after declining 0.8% last week. The currency was hovering near a one-week high versus its major counterparts as traders repositioned ahead of key central bank commentary.

Analysis

Data released 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. A separate report reiterated that the U.S. economy grew 1.5% in the second quarter, reinforcing the case for maintaining elevated borrowing costs. "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 currently pricing in no change to borrowing costs in September but see a 74% 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 cautioned 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... the risk of a more dovish Fed repricing and the lack of U.S. fiscal credibility are two big headwinds," Haddad said.

Currency and bond markets were still recovering from the U.S. Treasury's attempt last week to limit a rise in long-term borrowing costs through increased long-term bond buybacks. This move revived dollar debasement chatter on soaring debt concerns and government intervention in markets, as reflected in bitcoin's 25% gain this month to $79,423.56.

Key Numbers

- Dollar index: 99.158 (up ~0.3% week-over-week after prior week's 0.8% decline)

- Euro: $1.1639 vs dollar (down 0.1%)

- British pound: $1.3577 vs dollar (down 0.1%)

- Yen: 159.45 per dollar (down nearly 0.1%)

- Bitcoin: $79,423.56 (up 25% this month)

- Market pricing for December Fed hike: 74% probability of at least 25 basis points

What to Watch

The spotlight will now be on the Jackson Hole symposium starting later Thursday, where Chairman Kevin Warsh's remarks on Friday will be closely monitored for any hints on both the Treasury's latest policy shift and monetary policy direction. Weekly jobless claims data released Thursday could also offer markets additional clues on the labor market backdrop and Fed thinking.