Dollar gets fresh legs from U.S. data, hawkish talk

The U.S. dollar held above 4-1/2 year highs versus the yen and was set to make fresh gains towards the $1.12 levels against the euro on Wednesday after robust U.S. data and hawkish comments from Fed policymakers boosted expectations of a rate hike as early as mid-2022.

U.S. retail sales rose more than expected in October, a report showed Tuesday, building on momentum from last week when data showed consumer prices rising at the highest rate since 1990.

Money markets are pricing in a high probability of a Fed rate increase in June, followed by another in November. CME data suggest a 50% probability of a 25 bps rate hike by July 2022.

“The market assumes that the key rate will be hiked in the second half of next year,” said Antje Praefcke, an FX strategist at Commerzbank. “For me too, the dollar remains a ‘buy on dips’ short-term.”

The dollar index – which measures the currency against six rivals – rose 0.1% to 96.053 after earlier touching 96.266 for the first time since July last year.

The greenback rose to as high as 114.975 yen, its highest since March 2017 before retreating to trade at 114.88 yen.

The euro dipped abruptly to $1.1263 for the first time since July 2020 before trading 0.2% lower at $1.1308.

St. Louis Fed president James Bullard said on Tuesday the central bank should “tack in a more hawkish direction” over its next couple of meetings to prepare in case inflation does not begin to ease.

Elsewhere, the pound climbed to a one-week high versus the U.S. dollar and a 21-month high against the euro after data showed British inflation reached a 10-year high in October, boosting expectations of a rate hike as early as next month. [GBP/]

In cryptocurrencies, bitcoin traded just south of $60,000, after dipping below that level on Tuesday for the first time this month. It reached a record $69,000 last Wednesday.

(Reporting by Saikat Chatterjee; Editing by Barbara Lewis)