FOREX-Dollar set for biggest weekly rise in 7 months on rate bets

"The market has interpreted the Fed chair’s comments in a hawkish manner even though (Jerome) Powell's comments has mainly affected the expectation of the speed of the rate cycle, but not so much the extent of this cycle," Commerzbank strategists said in a note, which saw the euro weakening to $1.10 versus the dollar. The euro nursed losses on Friday with the single currency creeping marginally higher to $1.1152 from Thursday's 20-month low of $1.1131.

The dollar consolidated gains on Friday and was on track for its biggest weekly rise in seven months as expectations of higher interest rates fuelled the U.S. unit's gains versus rivals.

With money markets pricing 30 bps of rate hikes in March and more than 120 bps in cumulative increases before the end of the year, the dollar was in the limelight even as broader currency markets quietened somewhat after an eventful week in global markets punctuated by a hawkish Federal Reserve meeting. "The market has interpreted the Fed chair’s comments in a hawkish manner even though (Jerome) Powell's comments has mainly affected the expectation of the speed of the rate cycle, but not so much the extent of this cycle," Commerzbank strategists said in a note, which saw the euro weakening to $1.10 versus the dollar.

The euro nursed losses on Friday with the single currency creeping marginally higher to $1.1152 from Thursday's 20-month low of $1.1131. Major currencies drifted sideways in Asian trading before Chinese New Year holidays next week even though U.S. yields were marginally higher.

Data has also been supportive of the greenback with the U.S. economy registering its best annual growth in nearly four decades. More data including U.S. employment cost index and University of Michigan sentiment surveys on Friday is likely to reaffirm the Fed's hawkish stance. The yen hovered at 115.43 to the dollar while 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. Sterling was pushed to a one-month low of $1.3360 on Thursday but has bounced back to $1.3409 as traders await the Bank of England's meeting next week. Rates markets have priced a 90% chance of a hike.

"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 strategist Kit Juckes.

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