The dollar was up on Friday morning in Asia, with higher-than-expected U.S. inflation data and hawkish comments from a Federal Reserve policymaker accelerating expectations of aggressive interest rate hikes. However, similar pressures globally capped gains.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies was up 0.32% to 95.852 by 10:19 PM ET (3:19 AM GMT).
The USD/JPY pair inched up 0.06% to 116.08, with Japanese markets closed for a holiday.
The AUD/USD pair was down 0.27% to 0.7146 and the NZD/USD pair was down 0.22% to 0.6654.
The USD/CNY pair inched up 0.10% to 6.3604 while the GBP/USD pair inched down 0.07% to 1.3546.
The U.S. inflation data showed that the consumer price index (CPI) grew 7.5% year-on-year, and 0.6% month-on-month, in January. The core CPI grew 0.6% month-on-month and 6% year-on-year. It also prompted St. Louis Fed President James Bullard to say that the Fed should hike rates by 100 basis points over the next three meetings.
U.S. Treasuries climbed and the dollar rose to a five-week high against the yen during a volatile session overnight. The U.S. currency also vacillated against other currencies, before broadly firming earlier in the Asia session.
“There is definitely a feeling of urgency at least for some (Fed) members,” Commonwealth Bank Of Australia strategist Kim Mundy told Reuters.
“But the Fed isn’t the only central bank facing this inflation conundrum,” with a hawkish pivot at the European Central Bank (ECB) during the previous week potentially capping dollar gains by removing a headwind for the euro, Mundy added.
The ECB will update its economic projections in March 2022, where bond markets expect an even more hawkish turn. Swaps pricing is also pointing to a nearly 30% chance the Bank of England will hike interest rates by 50 bps next month.
Even central banks that have stuck to a more dovish approach, such as the Reserve Bank of Australia (RBA), are changing their tune. RBA Governor Philip Lowe said earlier in the day that if the economic recovery hits forecasts, interest rate hikes could potentially take place in 2022.
The Australian dollar is set for a weekly rise of nearly 1% despite the dollar’s Friday strength, while its New Zealand counterpart is also heading for a second consecutive weekly gain.
Meanwhile, the Bank of Japan also committed to buying an unlimited amount of 10-year bonds at 0.25% on Thursday, in response to several days of selling pressure in the Japanese bond market.