The dollar was headed for its best week in seven months on Friday, driven higher by a flight from risky assets and markets pricing a year ahead of aggressive hikes in U.S. interest rates.
Federal Reserve chair Jerome Powell unleashed bets on five or more hikes this year after he left the door open on Wednesday to raising rates faster than in previous cycles.
Data showing the best annual U.S. growth in nearly four decades didn’t hurt either.
Gains paused in the Asia session, leaving other major currencies to nurse losses. The euro crept marginally higher to $1.1152 from Thursday’s 20-month low of $1.1131.
The yen hovered at 115.43 to the dollar and the Australian and New Zealand dollars languished – the kiwi dipping slightly to a fresh 15-month low of $0.6570.
For the week so far, the dollar has gained about 1.7% on the euro, nearly 2% on the Antipodeans and the U.S. dollar index has shot above 97 for the first time since July 2020.
It last stood at 97.139.
“Don’t fight the Fed. Don’t fight the market,” said OCBC Bank analyst Terence Wu in Singapore.
“The dollar may well extend towards the next target at the 97.70/00 zone on the DXY Index, beyond which the technical resistances are scarce until close to 100.00,” he said.
“The Antipodeans have led losses against the dollar year-to-date, expect the euro and yen to catch up. Stay negative on the New Zealand dollar, euro and yen in the coming sessions.”
The yuan also copped a kicking on Thursday, its worst session in seven months, as softening industrial profit growth in China bolstered the case for monetary easing there.
That compares with a Fed funds futures market pricing in as many as five U.S. hikes this year with some analysts forecasting six.
Ahead on Friday are growth figures for Germany and France, and sentiment surveys in the United States. Beyond that looms a week of central bank meetings in Britain, Europe and Australia.
Sterling was pushed to a one-month low of $1.3360 on Thursday but has bounced to $1.3409 as traders await the Bank of England’s meeting next week. Rates markets have priced a 90% chance of a hike.
After the dust settles on the rates outlook, some analysts think the dollar then starts to run out of steam.
“The dollar is on cycle highs and has further to go as rate differentials and increased levels of market volatility provide support. But this is the last stage of the move,” said Societe Generale (PA:SOGN) strategist Kit Juckes.
“As the global economy emerges from the worst of the COVID pandemic this year, the market focus will shift to monetary policy normalisation and growth outside the U.S. and the best currency returns in the second half of this year are likely to come from outside the major developed economies.”