NEW YORK: The dollar hit a six-week high against a basket of currencies on Friday as traders ramp up bets that the Federal Reserve will hike rates higher than previously anticipated, and hold them there for longer, as it battles still-high inflation while the employment picture also remains strong.
Two Federal Reserve officials said on Thursday the US central bank likely should have lifted interest rates more than it did early this month and warned that additional hikes in borrowing costs are essential to lower inflation back to desired levels.
Major banks are also raising their rate hike forecasts. Goldman Sachs said it was expecting the Fed to hike rates three more times this year, by a quarter of a percentage point each time, after data this week pointed to persistent inflation and resilience in the labor market.
“Right now the markets are having a major reset with Fed rate hike expectations,” said Edward Moya, senior market analyst at OANDA in New York. “It seems this current wave of inflation is proving to be troubling for policymakers everywhere and we could start to see monetary policy globally become much more restrictive.”
US data on Thursday showed monthly producer prices increasing by the most in seven months in January as the cost of energy products surged, while the number of Americans filing new claims for unemployment benefits unexpectedly fell last week.
Concerns about the impact of higher rates on the economy is also weighing on risk sentiment, giving a further boost to the US currency.
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