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The dollar held onto recent gains against the euro and sterling on Friday ahead of Federal Reserve Chair Jerome Powell's widely-anticipated speech, which traders hope will offer clues on the U.S. central bank's tightening plans.

The euro was at $0.9966 in early Asian trade, having failed in several attempts this week to break back above parity against the dollar. It fell below that psychologically important level on Monday.

Sterling was down 0.17% at $1.1818. Britain's energy regulator later in the day will announce an eye-watering jump in a cap on energy prices, further boosting inflation in an already struggling British economy. Fuel price increases are passed on to British consumers through a price cap, calculated every three months.

This left the dollar index, which tracks the currency against its six main peers, at 108.53, on track for a 0.38% weekly gain and already up 2.5% in August.

Investors will eye Powell's speech at the Jackson Hole symposium at 1400 GMT for any insight into how aggressively the U.S. central bank still plans to raise interest rates.

Policymakers have in recent weeks emphasised how important it is for the Fed to get inflation under control.

Minneapolis Federal Reserve Bank President Neel Kashkari said on Tuesday his biggest fear is that the U.S. central bank misreads the extent and persistence of price pressures and will need to deliver even more aggressive rate hikes to curb inflation.

"The smoke signals (from the Fed) have been, as Kashkari indicated, 'if we have to err on the side of overtighening or not doing enough, we know what side we want to be on'," said Ray Attrill, head of FX strategy at National Australia Bank.

"I think there's an element of wanting to be seen to be talking tough in the hope that the tougher they talk, the less we have to do in terms of policy."

Investors will also look to Powell to see whether his comments on the long-term outlook could prompt markets to unwind 2023 monetary easing bets, underpinning the dollar, Attrill added.

Markets are currently positioned https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html for U.S. rate hikes to peak this year and are pricing in rate cuts in 2023 on expectations policymakers will be more concerned about slowing growth than high inflation by then.

Elsewhere, the Australian dollar fell 0.35%, back below the psychological level of $0.7, but continued to gain against battered European currencies.

The Japanese yen drifted a touch weaker at 136.64 per dollar.

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Currency bid prices at 0125 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $0.9964 $0.9972 -0.07% -12.35% +0.9978 +0.9962

Dollar/Yen 136.6650 136.5450 +0.06% +18.79% +136.7350 +136.4250

Euro/Yen 136.17 136.14 +0.02% +4.49% +136.2600 +136.1000

Dollar/Swiss 0.9642 0.9637 +0.05% +5.70% +0.9644 +0.9638

Sterling/Dollar 1.1816 1.1838 -0.17% -12.61% +1.1836 +1.1807

Dollar/Canadian 1.2953 1.2924 +0.24% +2.47% +1.2956 +1.2922

Aussie/Dollar 0.6956 0.6981 -0.34% -4.29% +0.6982 +0.6954

NZ 0.6201 0.6226 -0.40% -9.40% +0.6225 +0.6201

Dollar/Dollar

All spots