The Facts
On Fri., the US dollar index - which measures the value of the US dollar relative to a basket of other currencies - hit a five-week high, with Federal Reserve (Fed) officials talking up the need for more interest rate hikes.
The dollar index increased 0.61% to $108.13 , the highest since July 15, as the Euro dipped 0.32% to $1.0055, the weakest since the same date.
The Spin
Narrative A
Fed policies take time to be felt in the broader economy, so the central bank should be cautious when deciding its next move. With inflation already easing last month, we should wait to see how the previous rate hikes affect it before adding even more.
Narrative B
The one-month slowing of inflation in July doesn't prove any meaningful cooling of the economy, so the Fed should continue its significant rate hikes in the coming months. Only if you believe inflation will rapidly decline in the near term would you want the Fed to pull back the reins, and that scenario is very unlikely.
