(Adds quotes, details; updates prices; changes byline, dateline, previous LONDON)
The dollar hit a six-week high against a basket of currencies on Friday as traders ramp up bets that the Federal Reserve will hike rates higher than previously anticipated, and hold them there for longer, as it battles still-high inflation while the employment picture also remains strong.
Two Federal Reserve officials said on Thursday the U.S. central bank likely should have lifted interest rates more than it did early this month and warned that additional hikes in borrowing costs are essential to lower inflation back to desired levels.
Major banks are also raising their rate hike forecasts. Goldman Sachs said it was expecting the Fed to hike rates three more times this year, by a quarter of a percentage point each time, after data this week pointed to persistent inflation and resilience in the labor market.
“Right now the markets are having a major reset with Fed rate hike expectations,” said Edward Moya, senior market analyst at OANDA in New York. “It seems this current wave of inflation is proving to be troubling for policymakers everywhere and we could start to see monetary policy globally become much more restrictive."
U.S. data on Thursday showed monthly producer prices increasing by the most in seven months in January as the cost of energy products surged, while the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.
Concerns about the impact of higher rates on the economy is also weighing on risk sentiment, giving a further boost to the U.S. currency.
“We’re starting to see risk aversion take over, and that’s also triggering some safe-haven flows for the dollar,” said Moya.
Fed funds futures traders are now pricing for the fed funds rate to reach 5.31% in July, and remain above 5% all year. The Fed's target range stands at 4.5% to 4.75%, having risen rapidly from 0% to 0.25% in March 2022. FEDWATCH USONFFE=
The dollar index =USD was last up 0.17% at 104.27, after earlier reaching 104.67, the highest since Jan. 6.
The euro EUR=EBS dipped 0.24% to $1.0647, after earlier falling to $1.06125, the lowest since Jan. 6. European Central Bank (ECB) officials have also made clear that they expect euro zone rates to keep rising.
"There is a risk that inflation proves to be more persistent than is currently priced by financial markets," German ECB official Isabel Schnabel told Bloomberg on Friday.
The dollar gained 0.41% against the Japanese yen JPY=EBS to 134.49, after reaching 135.12 earlier, the highest since Dec. 20.
Sterling GBP=D3 was flat at $1.1985, after earlier falling to $1.19150, its lowest since Jan. 6. Data on Friday showed British consumers unexpectedly increased their shopping in January.
======================================================== Currency bid prices at 9:29AM (1429 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 104.2700 104.1100 +0.17% 0.754% +104.6700 +104.1200 Euro/Dollar EUR=EBS $1.0647 $1.0674 -0.24% -0.63% +$1.0674 +$1.0613 Dollar/Yen JPY=EBS 134.4850 133.9500 +0.41% +2.59% +135.1000 +133.9500 Euro/Yen EURJPY= 143.20 142.95 +0.17% +2.07% +143.6700 +142.9400 Dollar/Swiss CHF=EBS 0.9298 0.9258 +0.45% +0.57% +0.9331 +0.9265 Sterling/Dollar GBP=D3 $1.1985 $1.1987 +0.00% -0.88% +$1.2000 +$1.1915 Dollar/Canadian CAD=D3 1.3497 1.3456 +0.31% -0.38% +1.3537 +1.3454 Aussie/Dollar AUD=D3 $0.6845 $0.6880 -0.52% +0.40% +$0.6879 +$0.6812 Euro/Swiss EURCHF= 0.9900 0.9877 +0.23% +0.05% +0.9925 +0.9879 Euro/Sterling EURGBP= 0.8882 0.8897 -0.17% +0.43% +0.8928 +0.8882 NZ NZD=D3 $0.6218 $0.6256 -0.57% -2.04% +$0.6255 +$0.6194 Dollar/DollarDollar/Norway NOK=D3 10.3275 10.2310 +0.99% +5.28% +10.3730 +10.2560 Euro/Norway EURNOK= 10.9995 10.9358 +0.58% +4.82% +11.0205 +10.9365 Dollar/Sweden SEK= 10.5070 10.4344 +0.42% +0.95% +10.5555 +10.4428 Euro/Sweden EURSEK= 11.1879 11.1415 +0.42% +0.34% +11.2207 +11.1457
