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Dollar Advances on Strong U.S. Data

The U.S. dollar saw gains against a basket of currencies, supported by stronger-than-expected producer prices and a decline in jobless claims. This suggests that the Federal Reserve would need to continue its interest rate hikes to combat inflation.


Dollar Hits Six-Week Highs

The dollar index hit six-week highs, rising against the yen, euro, and Australian dollar. By afternoon trading, the dollar pulled back and traded within narrow ranges.

U.S. Economic Data Improves

The U.S. producer price index rose to 0.7% in January after declining to 0.2% in December. According to a Reuters poll, jobless claims also fell unexpectedly to 194,000, compared to the 200,000 claims expected.

Higher Interest Rates Expectations

The strong PPI data and hawkish comments from Cleveland Fed President Loretta Mester have increased rate expectations further, leading to the dollar's upward movement. Mester said that the Fed has made progress in bringing policy from an accommodative stance to a restrictive one, but more work needs to be done.

Stable Labor Market and Inflation

Stronger labor market data and sticky inflation have solidified the "higher for longer" perspective on interest rates. The dollar index was up 0.2% at 103.93 after hitting a six-week high of 104.24. It is still over 11% above its 20-year low from late September.


Yen Traders Await BOJ Governor's Speech

The U.S. dollar hit a six-week peak against the yen but was down 0.1% at 133.94. Yen traders are waiting for a speech by Kazuo Ueda, the nominee for the next Bank of Japan governor, at a confirmation hearing on February 24.

U.S. Interest Rates to Peak in July

The interest rate futures market shows that U.S. rates could peak close to 5.25% by July before dropping to 5.0% by the end of the year.

Strong U.S. Retail Sales and Inflation Figures

Data from the U.S. Commerce Department showed that U.S. retail sales rebounded sharply in January after two consecutive monthly declines. U.S. inflation figures also showed consumer prices slowing but still sticky. U.S. job growth accelerated sharply in January, pointing to a resilient economy.

Market Watchers Question the Economy's Future

The question for market watchers is how well the economy can continue to hold up, especially as rates head much higher than originally thought.

Sterling Slides on Inflation Data

Sterling slid 0.5% to $1.1985 after losing over 1% on Wednesday. British inflation slowed more than expected in January, and there were signs that price pressures are cooling in parts of the economy, such as services. The Bank of England has indicated that it may stop raising rates in March, and Wednesday's inflation data reinforced that view.