Dollar jumps in New York as Fed interest rate hike seen nearer

The dollar hit a seven-week high on Wednesday after hawkish comments from two Federal Reserve officials late on Tuesday boosted expectations that the US central bank is closer to raising interest rates. New York Fed President William Dudley, a permanent voter on the US central bank's open market committee, said the case for tightening monetary policy "has become a lot more compelling."
John Williams, president of the San Francisco Fed, said a rate increase was very much on the table for serious consideration at the March meeting given full employment and accelerating inflation. "Williams and Dudley are very strongly signalling the fact that March is a live meeting, and that's occurring against the backdrop of consistently strong (economic) numbers," said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York.
The US dollar rose 0.6 percent against a basket of six major currencies to 101.73, after earlier reaching 101.97, its highest since January 11. Against Japan's currency, the greenback climbed 1.05 percent to touch a two-week high of 114.04 yen. "The story has been an aggressive reprising of the March Fed hike. That's where the dollar has been taking cues from," said Vassili Serebriakov, foreign exchange strategist at Credit Agricole in New York.
Futures traders are now pricing in a 66 percent chance of a Fed hike in March, up from 35 percent on Tuesday, according to the CME Group's FedWatch Tool. Fed Chair Janet Yellen and Vice Chair Stanley Fischer are both due to speak on Friday. Data on Wednesday showed that US consumer price inflation jumped in January by 0.4 percent, the largest increase since February 2013, while consumer spending increased 0.2 percent in the month.
Rate expectations overshadowed a speech by US President Donald Trump late on Tuesday, which outlined broad tax cuts and a $1 trillion public-private initiative to rebuild degraded roads and bridges but failed to give specific details on the plans. Sterling and the Canadian dollar weakened against the greenback to their lowest levels since January 20. Canada's central bank struck a cautious tone while holding rates steady, weighing on the loonie. "The currency was already falling to start with, and that kind of played into the move," Credit Agricole's Serebriakov said. Sterling sank as disappointing economic data added to political nerves that have begun to weigh on the currency again after last year's Brexit vote.