Dollar powers to six-week high as interest rate expectations rise

The dollar rose to a six-week high on Friday as strong US 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 rapidly from 0% to 0.25% in March 2022.

The euro fell 0.38% to its lowest since Jan. 6 at $1.063.

"The Fed is now allowed to sound as hawkish as it wants to be because the data has been so strong," said Francesco Pesole, FX strategist at Dutch bank ING.

"Since the jobs data, pretty much all new releases in the U.S. have come in on the strong side," he said, referencing the blockbuster employment report on Feb. 3.

"The dollar is moving higher. Markets are definitely moving towards higher rate expectations."

The US dollar index was last up 0.64% at 104.52, its highest since mid-January. Economists at Goldman Sachs on Thursday increased their expectations for Fed interest rate increases this year.

Having previously expected two more, they told clients in a note that they now expected three consecutive 25 bp rises, in March, May and June, "in light of the stronger growth and firmer inflation news". That would take rates to 5.25% to 5.5%.