Dollar set to see biggest weekly rise in 7 months on rate bets

The dollar consolidated its gains on Friday and was on course for its biggest weekly gain in seven months against other major currencies as markets priced a year ahead of aggressive U.S. interest rate hikes.

Money markets have priced in a rate hike of 28.5 basis points in March and up to 119.5 basis points of cumulative hikes by the end of the year, with the dollar remaining in the spotlight after a week marked by a hawkish Federal Reserve meeting.

The dollar index edged up 0.01% to 97.232, with the euro also barely rising 0.05% to $1.1149.

“I’m looking for some consolidation, but nothing says the dollar’s rise is over,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

US labor costs rose sharply in the fourth quarter, but less than expected. The Employment Cost Index, the broadest measure of labor costs, rose 1.0% after rising 1.3% in the July-September period, the department said. work.

Economists polled by Reuters had forecast a 1.2% advance in the ECI, widely seen as one of the best measures of labor market slowdown and a predictor of core inflation.

“The employment cost index, which (Fed Chairman Jerome) Powell referred to specifically, was a little weaker than expected and pushed back some positional adjustments ahead of the weekend,” Chandler said. .

US Treasury yields have stabilized, with 10-year yields trading thin and well below the two-year highs of nearly 1.9% they hit on Monday.

The two-year Treasury yield, which often moves in line with rate expectations, slipped 1.8 basis points to 1.174% but was still nearly 4.7 basis points higher for the week. .

The euro suffered losses on Friday, with the single currency climbing slightly higher from Thursday’s 20-month low of $1.1131.

Major currencies drifted sideways in Asian trading ahead of the Chinese New Year holiday next week, although US yields were slightly higher.

The data also supported the greenback, with the US economy posting its best annual growth in nearly four decades.

The yen edged up 0.06% to 115.30 to the dollar, while the Australian and New Zealand dollars languished – with the kiwi dipping slightly to a fresh 15-month low at $0.6570.

Over the week so far, the dollar index has gained about 1.7% and about the same against the euro, ie almost 2% on the antipodes. The US dollar index topped 97 for the first time since July 2020.

The pound was pushed to a one-month low of $1.3385 on Thursday but rebounded to $1.3409 as traders await the Bank of England meeting next week. The interest rate markets have assessed the chances of a rise at 90%.

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