The dollar was firm in Asia on Friday after hotter-than-expected U.S. inflation and hawkish comments from a Federal Reserve official unleashed a wave of bets on aggressive rate hikes, though similar pressures worldwide kept a lid on gains.
Thursday data showed U.S. consumer prices up 7.5% year-on-year in January, a fourth straight month above 6% and slightly higher than economists’ forecasts for a 7.3% rise.
After that, St. Louis Fed President James Bullard told Bloomberg he’d like to see 100 basis points of hikes by July.
Treasury yields leapt and the dollar jumped to a five-week high of 116.34 yen during volatile overnight trade.
The greenback oscillated against other currencies before turning broadly firmer early in the Asia session. The euro was last down 0.2% at $1.1400 and the Australian and New Zealand dollars each dropped about 0.3% in morning trade.
Rates futures have shifted to price a better-than-even chance of a 50 bp hike next month and more than 160 bps of tightening by the end of the year.
“There is definitely a feeling of urgency at least for some (Fed) members,” said Commonwealth Bank of Australia strategist Kim Mundy in Sydney.
“But the Fed isn’t the only central bank facing this inflation conundrum,” she said, and a hawkish pivot at the European Central Bank last week in particular can cap dollar gains by removing a headwind for the euro.
Bond markets are braced for more hawkishness when the ECB updates its economic projections next month and swaps pricing indicates a nearly 30% chance the Bank of England raises rates by 50 bps next month.
Hike expectations held sterling fairly steady and it was last at $1.3541.
Even the hitherto dovish Reserve Bank of Australia Governor Philip Lowe on Friday said if the economy tracks forecasts, hikes could be on the agenda this year.
The Aussie dollar, at $0.7145, is on track for a weekly rise of nearly 1% despite the dollar’s Friday strength.
The New Zealand dollar, last at $0.6658 is also heading for a second consecutive weekly gain.
It is the outliers that have been punished, with the Swedish crown dunked 2% after the central bank stressed that surging inflation is temporary overnight and kept policy steady.
The Bank of Japan also affirmed its resolve to anchor borrowing costs and yields on Thursday, promising to buy an unlimited amount of 10-year bonds at 0.25% after several days of selling pressure in Japan’s bond market.
The yen fell to a more-than-three-month low on the euro overnight. The U.S. dollar index was a tad stronger at 95.846 on Friday, just below its 50-day moving average.