The U.S. labor market is at full strength and the Federal Reserve needs to be on a path of gradual interest rate increases, Cleveland Federal Reserve President Loretta Mester said on Thursday.
"It seems like a gradual increase from a very low interest rate that we are at now is pretty compelling to me," Mester told reporters without saying whether she would support an increase at the Fed's policy meeting later this month.
Keeping interest rates low in the United States will likely do little to resolve deep-set problems in the country's labor market, Mester said on Thursday.
Mester, a voting member on the Fed's policy-setting committee, did not comment on when the Fed will next raise interest rates.
The U.S. dollar fell against a basket of currencies on Thursday after U.S. manufacturing activity unexpectedly declined in August, casting some doubts on the strength of U.S. economic growth.
The Institute for Supply Management (ISM) said its index of national factory activity fell 3.2 percentage points to a reading of 49.4, the first contraction since February.
"The ISM was a bit disappointing," said Shaun Osborne, chief forex strategist at Scotiabank in Toronto.
The data overturned earlier dollar strength as investors wait on highly anticipated jobs data due on Friday for new clues on when the Federal Reserve will next raise interest rates.
"Payrolls will be quite important for the dollar from a near-to-medium point of view,” Osborne said. "A strong number tomorrow is likely to convince people that a rate hike this year is quite possible, and it may even mean that September is realistically feasible for the Fed to move."
The dollar index .DXY, which measures the greenback against a basket of six major currencies, fell 0.40 percent to 95.635, after earlier trading as high as 96.239.
Oil prices fell more than 3 percent on Thursday, heading for their sharpest weekly slide since January as investors brushed aside talk that OPEC might freeze production and focused on a growing glut from U.S. crude stockpiles.
Brent crude futures ended the session at $45.45 per barrel, down $1.44 or 3.07 percent.
U.S. crude's West Texas Intermediate (WTI) futures closed down $1.54 or 3.45 percent at $43.16 a barrel.
Both Brent and WTI were down about 9 percent week-to-date for their biggest decline since mid-January.
Reference: CNBC, Reuters
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