(Adds fresh comment, prices)
The dollar traded flat and the euro weakened on Friday after a higher-than-expected Thursday readout of U.S. consumer prices that amped up investor expectations of interest rate hikes.
Comments from St. Louis Federal Reserve President James Bullard on Thursday unleashed a wave of bets on aggressive rate increases after the Labor Department said that in the 12 months through January, the CPI jumped 7.5% - the biggest year-on-year increase since February 1982.
Bullard told Bloomberg he'd like to see 100 basis points of hikes by July, adding that he had become “dramatically” more hawkish. (Full Story reuters://realtime/verb=NewsStory/ric=nL1N2UL2N1)
That shot the dollar into choppy trading early Friday as the greenback initially posted gains as well as an eight-day high, but struggled to choose a direction and eventually traded lower.
Meanwhile the euro, which surged last week, was set for a weekly decline after European Central Bank President Christine Lagarde said in an interview that raising rates now would not bring down record euro zone inflation but only hurt the economy. (Full Story reuters://realtime/verb=NewsStory/ric=nS8N2R301C)
The dollar index =USD fell 0.095%, with the euro EUR= down 0.23% to $1.1401.
The greenback is likely to have a “choppy few months” until the market gets more certainty as to how the Fed’s balance sheet runoff will commence, according to Edward Moya, senior market analyst at OANDA.
“You're going to see that dollar strength is primarily going to be driven on risk aversion and flows to safety, and right now, I think the market is really going back and forth as far as what Fed officials are really likely to do,” he said.
Lagarde’s comments along with Bullard’s remarks on possible rate hikes “seem to be behind the complete reversal of yesterday’s EUR/USD rally”, said Chris Turner, global head of markets at ING.
"If the Fed is to step hard on the monetary brakes, we would certainly favour the dollar against the low yielders backed by central bankers who have firmly placed themselves in the dovish camp."
Goldman Sachs now expects seven 25-bps interest rate rises from the Fed this year, up from its previous forecast of five. (Full Story reuters://realtime/verb=NewsStory/ric=nL1N2UM0LB)
Fed policymakers had already flagged that they will begin raising the central bank's benchmark overnight interest rate from near zero at the March meeting, just days after they stop their two-year spree of buying billions in government bonds each month. (Full story https://www.reuters.com/world/us/hot-inflation-builds-case-big-bang-fed-rate-hike-march-2022-02-10)
======================================================== Currency bid prices at 10:40AM (1540 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 95.7000 95.7950 -0.09% 0.039% +96.0580 +95.6380 Euro/Dollar EUR=EBS $1.1403 $1.1427 -0.22% +0.29% +$1.1435 +$1.1370 Dollar/Yen JPY=EBS 115.8550 116.0000 -0.11% +0.65% +116.1700 +115.7700 Euro/Yen EURJPY= 132.11 132.56 -0.34% +1.36% +132.6100 +131.8500 Dollar/Swiss CHF=EBS 0.9255 0.9253 +0.08% +1.51% +0.9287 +0.9247 Sterling/Dollar GBP=D3 $1.3598 $1.3561 +0.25% +0.52% +$1.3598 +$1.3515 Dollar/Canadian CAD=D3 1.2680 1.2724 -0.32% +0.31% +1.2753 +1.2677 Aussie/Dollar AUD=D3 $0.7181 $0.7169 +0.17% -1.21% +$0.7185 +$0.7109 Euro/Swiss EURCHF= 1.0551 1.0572 -0.20% +1.76% +1.0575 +1.0543 Euro/Sterling EURGBP= 0.8385 0.8426 -0.49% -0.18% +0.8431 +0.8381 NZ NZD=D3 $0.6688 $0.6676 +0.16% -2.32% +$0.6693 +$0.6628 Dollar/DollarDollar/Norway NOK=D3 8.8000 8.8150 -0.20% -0.14% +8.8705 +8.7925 Euro/Norway EURNOK= 10.0358 10.0600 -0.24% +0.23% +10.0994 +10.0243 Dollar/Sweden SEK= 9.2439 9.2904 -0.78% +2.51% +9.3518 +9.2403 Euro/Sweden EURSEK= 10.5416 10.6249 -0.78% +3.01% +10.6437 +10.5370 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates https://tmsnrt.rs/2RBWI5E^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
