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The dollar is rising on hopes of a US interest rate hike

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News Tech: The dollar edged higher against a basket of currencies on Monday as recent jobs data prompted some Wall Street banks to raise their estimates for the pace of Federal Reserve interest rate hikes for the year. The dollar index, which measures the greenback against six major currencies, rose 0.2% to 95.993. The index remains close to a 16-month high reached at the end of November. The dollar was supported by Friday’s closely watched jobs report, which showed the US labor market is at or near the highest level of employment.

According to CME’s FedWatch tool, traders have an 80% chance of a rate hike in March. Rising Treasury yields – the benchmark 10-year US Treasury note yield hit a nearly two-year high on Monday – also supported the greenback. Traders stepped up their bets on a rate hike this year after minutes from the US central bank’s December meeting hinted at an earlier-than-expected rate hike and the possibility of the Fed cutting bond holdings will be sooner than many initially think.

“Several sell-side firms revised their Fed forecasts following Friday’s NFP (non-farm payrolls) report,” said Brad Bechtel, global head of FX at Jefferies. With an unemployment rate below 4%, the Fed can declare its job ‘done,’ Bechtel said. Goldman Sachs expects the Fed to raise rates four times this year and begin the process of reducing the size of its balance sheet as early as July. The investment bank, which previously expected the Fed to raise rates in March, June, and September, now expects another hike in December. On Friday, J.P. Morgan and Deutsche Bank also forecast a tightening of US monetary policy.

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Investors will be watching inflation data and testimony from Fed Chairman Jerome Powell and Fed Governor Lael Brainard this week for clues about the timing and pace of rate hikes. US consumer inflation data for December is due out on Wednesday, with headline CPI expected to hit 7% year-on-year, bolstering the case for a rate hike as soon as possible. The pound fell 0.11% against the dollar on Monday, although easing concerns about the negative impact of the Omicron variant on the economy helped the pound hit a near two-year high. year against the euro.

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