The dollar rose sharply on Friday, as rising consumer prices fueled predictions that the Federal Reserve will raise interest rates swiftly this year, beginning next month. The Dollar Index, which monitors the greenback against a basket of six other currencies, was 0.4 %higher at 95.915 at 2:55 a.m. ET (0755 GMT). Consumer prices in the United States rose 7.5 %year over year in January, the largest annual gain in 40 years and the fourth consecutive month over 6%, according to data released Thursday.
Following the publication, St. Louis Federal Reserve President James Bullard stated that he has become “dramatically” more hawkish, pushing for a full percentage point of interest rate rises over the next three meetings of the US central bank. The market has reacted, with the 10-year Treasury yield breaking beyond 2% for the first time since August 2019, and rates futures now pricing in a better-than-two-in-three possibility of a 50-basis-point boost next month.
Forecasts on Interest Rates
Goldman Sachs, a powerful investment firm, now forecasts seven 25-basis-point interest rate hikes from the Fed, up from five previously. After reaching a five-week high of 116.34 overnight, the USD/JPY climbed 0.1 %to 116.06, while the risk-sensitive AUD/USD lost 0.6 %to 0.7126. EUR/USD fell 0.4 %to 1.1385, with the euro already weakened by European Central Bank President Christine Lagarde reversing her hawkish tone from the central bank’s policy meeting last week, warning that a rush to tighten monetary policy would harm the Eurozone economy’s recovery from the pandemic.
GBP/USD fell 0.1 %to 1.3537, with sterling bolstered by economic statistics showing the UK economy grew at its quickest rate since World War II last year, despite a lesser knock than predicted in December. The economy grew by 7.5 %last year, the biggest since 1941, despite a 0.2 %drop in December when the Omicron variant affected the restaurant and hospitality industries.
In other news, the EUR/SEK fell 0.1 %to 10.6092, while the USD/SEK jumped 0.3 %to 9.3164, as the Riksbank kept its dovish monetary policy stance despite the global tightening trend.
The Riksbank stated in a statement on Thursday that “even though the danger of excessively low inflation is deemed to have diminished, it still exists.” Ahead of the Bank of Russia’s monthly policy meeting, the USD/RUB traded 0.1 %lower at 74.9597. The central bank is anticipated to raise its key interest rate to 9.5 %for the third time in less than a year on Friday, with inflation remaining a significant concern.