SINGAPORE—The dollar rose 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 percent year-on-year in January, a fourth straight month above 6 percent and slightly higher than economists’ forecasts for a 7.3 percent 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 in the Asia session. The euro was last down 0.4 percent at $1.1382 and the Australian and New Zealand dollars each dropped more than 0.5 percent.
Rates futures have shifted to price a better-than-two-in-three chance of a 50 bp hike next month and there is even chatter of an emergency hike sooner. More than 160 bps of tightening is priced in 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.
Europe’s bond markets are braced for more hawkishness when the ECB updates its economic projections next month and swaps pricing indicates a nearly 30 percent chance the Bank of England raises rates by 50 bps next month.
Hike expectations have held sterling fairly steady. It was last down 0.2 percent to $1.3529.
Even the dovish Reserve Bank of Australia Governor Philip Lowe on Friday opened the door to hikes this year, though he added there were risks in moving too soon.
Markets are already positioned far more aggressively and the Aussie dollar, at $0.7130, is on track for a weekly rise of about 0.7 percent despite the dollar’s Friday strength.
The kiwi, last at $0.6639, is also heading for a second consecutive weekly gain and a rate hike from the Reserve Bank of New Zealand is all but certain later in the month.
It is the outliers that have been punished, with the Swedish crown dunked 2 percent on Thursday after the central bank stressed that surging inflation is temporary.
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 percent after several days of selling pressure in Japan’s bond market.
The yen fell to a more-than-three-month low on the euro on Thursday, though it steadied in Asia trade at 132.11 yen per euro. The U.S. dollar index was 0.2 percent stronger at 95.846 on Friday, though still just below its 50-day moving average.
