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Dollar powers to six-week peak on expectations rates will rise

The dollar rose to a six-week high on Friday as strong U.S. economic data and comments from Federal Reserve officials led to traders betting more interest rate rises are coming.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, and that monthly producer prices increased by the most in seven months in January.

St Louis Fed President James Bullard said on Thursday he backed further rate increases that would take borrowing costs to around 5.25% to 5.5%.

The Fed’s target range currently stands at 4.5% to 4.75%, having risen from 0% to 0.25% in March 2022.

Analysts said the data and Bullard’s tough tone boosted the dollar, sending the euro to its lowest level since Jan. 6 at $1.063. It was last down 0.25% at $1.0641.

The U.S. dollar index rose to its highest since early January earlier in the day. It was last up 0.6% at 104.44 and was on track for a third straight week of gains.

Economists at Goldman Sachs on Thursday increased their expectations for Fed interest rate increases this year.

Having previously expected two more, they said they now expected three consecutive 25 bp rises, in March, May and June. That would take rates to 5.25% to 5.5%.

“In light of the stronger growth and firmer inflation news, we are adding another 25 bp rate hike to our Fed forecast,” chief economist Jan Hatzius told clients in a note.

Against the Japanese yen, the dollar rose 0.68% to 134.85, the highest since mid-December. It was on track for a weekly gain of roughly 2.5%, its largest rise since June.

Japan’s government picked academic Kazuo Ueda as its new central bank chief on expectations he can help keep inflation on target and sustain economic growth and wage increases, finance minister Shunichi Suzuki said on Friday.

Sterling was down 0.4% to $1.194 and hit its lowest since early January. That was despite British consumers unexpectedly increasing their shopping in January.

“The U.S. economy, from recent data, shows that it’s still healthy. It doesn’t seem to be going into a recession any time soon,” said Tina Teng, market analyst at CMC Markets. “The markets are pricing for higher-for-longer rates.”

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