NEW YORK- The dollar consolidated gains and posted its biggest weekly rise in seven months as markets priced in a year ahead of aggressive hikes in US interest rates.
Money markets priced in a 28.5-basis-point interest rate hike in March and as many as 119.5 basis points in cumulative increases by year’s end as the dollar steadily rose in a week highlighted by a more hawkish tone coming out of a Federal Reserve meeting.
The dollar index rose a scant 0.04 percent. The index, which measures the dollar’s value against other major currencies, rose about 1.7 percent for the week to mark its biggest weekly gains since June. It shot above 97 for the first time since July 2020.
“I look for some consolidation, but nothing to say that the dollar’s up move is over,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
US labor costs increased strongly in the fourth quarter, but less than expected, the Labor Department said. The Employment Cost Index (ECI), the broadest measure of labor costs, rose 1.0 percent after increasing 1.3 percent in the prior quarter.
Economists polled by Reuters had forecast a 1.2 percent advance in the ECI, widely viewed as one of the better measures of labor market slack and a predictor of core inflation.
“The Employment Cost Index, which (Fed Chair Jerome) Powell has referred to specifically, was a bit softer than expected and has spurred some position adjusting ahead of the weekend,” Chandler said.
