Dollar Climbs to Highest Since January as Rate-Hike Wagers Build

(Bloomberg) -- The dollar was trading near its daily high and on track for its longest winning streak since May, underpinned by a surge in Treasury yields as markets reacted to hawkish rhetoric from Federal Reserve officials.

Fed Governor Jerome Powell became the latest official to say that a rate hike will be under active discussion when the Federal Open Market Committee meets March 14 and 15. Powell's remarks follow closely those of Governor Lael Brainard, who shed her usually dovish plumage to caution that a rate hike is likely appropriate “soon.” The Bloomberg dollar index rose to its highest since Jan. 20 and was up for a fifth day as it closed in on its 55-day moving average.

• After the recent barrage of Fedspeak, a March rate hike is priced as a near certainty; focus is now shifting to Friday appearances by Fed Chair Janet Yellen and Vice Chair Stanley Fischer to see if the usually cautious pair will make any effort to rein in expectations for a hike amid their professed data-dependent decision making, with the key February jobs report still a week away
• At the same time, traders say they doubt that a single data point, even a sub-par jobs report, will deter the Fed from its course, especially given the Fed's stated aim of raising rates three times this year
• Chicago Fed President Charles Evans, Richmond Fed President Jeffrey Lacker and Powell are also set to speak Friday
• Trading flows were modest Thursday, though there was evidence that macro players and model-driven funds were scrambling to rebuild dollar longs, having been caught wrong-footed by the quick shift in sentiment this week, traders in Europe and London said
• USD gains were underpinned by a sharp rise in the 10-year Treasury yield, which briefly climbed above 2.50%, extending gains from the recent low ~2.31% seen on Feb. 24
• USD/JPY rose to 114.59, its highest since Feb. 15, with offers above 114.50 from Japanese exporters and option-related players slowing gains, traders said; offers are said to line the path to 115.00 where large option strikes are set to roll off Friday and Monday, likely bringing related supply
• EUR/USD fell below 1.0500 and to its lowest since Feb. 22, with the drop cushioned by option-related demand, as a large strike rolls off on Monday; EUR finds technical support at 1.0494 which was the low in February, with the Jan. 11 low area at 1.0454 seen to accumulate stop-loss sell orders
• With the current focus on the FOMC's rate-hiking intentions, the euro gained little solace from Feb. euro zone CPI rising to a 2% annual rate and PPI climbing to an above-est. 3.5% pace, data that will be considered by the European Central Bank when it meets in a week

To contact the reporter on this story: Dennis Pettit in New York at dpettit5@bloomberg.net.

To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Greg Chang, Mark Tannenbaum