Dollar resurgent as Jerome Powell gives Federal Reserve room to hike

The dollar rose to multi-week highs against other major currencies on Thursday, after Federal Reserve chair Jerome Powell surprised investors by leaving the door open to larger and faster than expected interest rate hikes.
 

The greenback hit a two-month top of $1.1220 per euro and held gains at 114.62 yen. It hit its highest in more than a year on the kiwi, a seven-week peak on the Aussie and its best since early January versus the pound.
 

It also rose broadly against emerging market currencies as interest rate futures markets moved swiftly to all but price in as many as five Federal Reserve rate rises this year.
 

Powell had told reporters after the Fed concluded a two-day meeting on Wednesday that board members were of a mind to begin hiking in March to tame runaway inflation.
 

He stressed that no decisions had been taken, but answering a question about whether the central bank would consider a 50-basis point hike, he replied without ruling it out.
 

He said instead that the economy seemed stronger than in the most recent hiking cycle and inflation much, much hotter.

"There's quite a bit of room to raise interest rates without threatening the labour market," he said.
 

Bank of Singapore strategist Moh Siong Sim said the market had expected four rate hikes this year, meaning one per quarter.

"Powell did not rule out more than four." The dollar's overnight leap of 0.7% against the yen was its sharpest in more than two months and bond and equity markets have also been spooked by the prospect of higher interest rates.
 

The risk-senstive Australian dollar was last down about 0.6% at $0.7072, having broken support around $0.7082 to leave open December's low of $0.6994.
 

The New Zealand dollar fell 0.7% to $0.6601, a nearly 15-month trough. Data showed inflation there hit a three-decade high in the fourth quarter, largely as expected.
 

"I think the market just wants to sell most risk sensitive currencies," said Westpac analyst Imre Speizer.
 

Sterling fell 0.2% to $1.3431 and is delicately balanced as traders keep a wary eye on Prime Minister Boris Johnson, who is under pressure after attending parties during lockdowns, and on next week's Bank of England meeting.
 

In the Asia session, Chinese industrial profits grew at their slowest pace in more than 18 months, bolstering the case for policy support and knocking the yuan.
 

The yuan was on course for its steepest daily drop in more than a month in onshore trade and last traded at 6.3490 to the dollar, down about 0.5%. Emerging markets currencies across Asia also logged losses.
 

Later on Thursday U.S. gross domestic product figures are due and are expected to show annual growth at its strongest since 1984.
 

After a battering last week, cryptocurrencies have mostly held their ground in the wake of the Fed's meeting, though bitcoin faced pressure in the Asia session and was last down 2% at $36,000.