US dollar soar, euro near three-week high, inflation data on tap

In Monday’s London trading session, the dollar was up, while the euro was near a three-week high.

Dollar gains were supported as investors digested the European Central Bank’s (ECB’s) hawkish turn while saying further gains are less likely in the short term due to the Federal Reserve’s forthcoming interest rate hike.

In the early morning hours of Monday, the Dollar Index, which measures the greenback against a basket of other major currencies, rose 0.07% to 95.545 index points.

Consumer price index data for the U.S. will be released on Thursday. Fed rate hike bets could rise with a strong reading in March 2022.

At $1.1451, the euro traded close to the previous week’s high of $1.4183, and near the levels last seen in mid-January 2022. Despite a bruising week, an upbeat job report boosted the dollar late in the week.

During January, there were 467,000 non-farm payrolls and the employment rate was 4%. Some investors expect the safe-haven US currency to continue to gain value.

Currency pundits see the risk of more dollar upside in the near-term if interest rate markets price a greater chance of a 50 basis points hike in March.

Yet, following ECB President Christine Lagarde’s hawkish remarks last week, any dollar rally is likely to be limited.

Fed rate hikes in March are priced in at one in three chances, and they may hit 1.5% by the end of 2022.

On Monday, the two-year yield was near its two-year high of 1.32%, while the benchmark 10-year yield was at 1.9049%.

In the coming days, investors will await speeches from the Federal Reserve, the European Central Bank, the Bank of England, the Reserve Bank of Australia (RBA), and the Bank of Canada.