NEW YORK, Jan 29 — The dollar consolidated gains yesterday and posted its biggest weekly rise in seven months as markets priced in a year ahead of aggressive hikes in US interest rates.
Money markets priced in a 28.5-basis-point interest rate hike in March and as many as 119.5 basis points in cumulative increases by year’s end as the dollar steadily rose in a week highlighted by a more hawkish tone coming out of a Federal Reserve meeting.
The dollar index rose a scant 0.04 per cent. The index, which measures the dollar’s value against other major currencies, rose about 1.7 per cent for the week to mark its biggest weekly gains since June. It shot above 97 for the first time since July 2020.
“I look for some consolidation, but nothing to say that the dollar’s up move is over,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
US labour costs increased strongly in the fourth quarter, but less than expected, the Labour Department said. The Employment Cost Index (ECI), the broadest measure of labour costs, rose 1.0 per cent after increasing 1.3 per cent in the prior quarter.
Economists polled by Reuters had forecast a 1.2 per cent advance in the ECI, widely viewed as one of the better measures of labour market slack and a predictor of core inflation.
“The Employment Cost Index, which (Fed Chair Jerome) Powell has referred to specifically, was a bit softer than expected and has spurred some position adjusting ahead of the weekend,” Chandler said.
US Treasury yields eased, with 10-year yields falling to about 1.77 per cent for the day, well below two-year highs of nearly 1.9 per cent hit on Monday.
The two-year Treasury yield, which often moves in step with rate expectations, slid 2.8 basis points to 1.164 per cent, but was still much higher for the week.
The euro nursed losses on Friday with the single currency little changed at US$1.1143 (RM4.67), a bit up from Thursday’s 20-month low of US$1.1131.
Major currencies drifted sideways in Asian trading before Lunar New Year holidays next week even though US yields were marginally higher.
Data has been supportive of the dollar as the US economy registered its best annual growth in nearly four decades.
The greenback is poised to gain further versus the euro and yen as the Fed raise rates but the European Central Bank and Bank of Japan likely stand pat.
BOJ Governor Haruhiko Kuroda said yesterday it was premature to raise the bank’s rate targets.
A preliminary estimate next week of euro zone consumer prices in January is expected to lower the year-over-year rate toward 4.3 per cent from 5.0 per cent, allowing ECB President Christine Lagarde to keep the hawks at bay, Chandler said.
The yen rose 0.14 per cent to 115.21 per dollar, while the Australian and New Zealand dollars languished, with the kiwi dipping slightly to a fresh 15-month low of US$0.6570.
Sterling was pushed to a one-month low of US$1.3360 on Thursday but has bounced back a bit as traders await the Bank of England’s meeting next week. Rates markets have priced a 90 per cent chance of a hike. — Reuters
