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  • Writer's pictureanalysiswatch

Title: Dollar Climbs as Soaring Inflation Boosts Rate Hike Expectations

Feb 11, 2022 02:56AM ET By: AnalysisWatch

The US dollar rose sharply on Friday as rising consumer prices fueled expectations that the Federal Reserve will raise interest rates aggressively this year, beginning next month.

At 2:55 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.4% higher at 95.915.

Data released on Thursday showed US consumer prices rose 7.5% year-on-year in January, the biggest increase in 40 years and the fourth straight month above 6%.

Following the release, St. Louis Federal Reserve President James Bullard stated that he was now much more aggressive and was calling for a full percentage point rate hike at the next three Fed meetings.

The market reacted to this: the yield on the 10-year US Treasury bond climbed above 2% for the first time since August 2019, and interest rate futures are now pricing in a more than two-in-three chance of a 50 basis point rate hike next month.

The risk-sensitive USD/JPY rose 0.1% to 116.06 after climbing to a five-week high of 116.34 overnight, while the risk-sensitive AUD/USD fell 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's backtracking on the hawkish impression she gave at the central bank's monetary policy meeting last week, warning that the Governing Council would damage the eurozone economy's recovery from the pandemic if it hastily tightened monetary policy.

The GBP/USD pair fell 0.1% to 1.3537, with sterling getting some support from economic data that showed the UK economy expanded at its fastest pace since World War II last year after suffering a milder-than-expected slump in December.

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