US Dollar Rebounds As Fed Officials Comment On Rates

The US dollar index bounced back on Friday from recent declines following comments from Federal Reserve officials on interest rates that supported the currency, while the dollar was at a fresh six-year high against the yen and the euro eased.

St. Louis Federal Reserve President James Bullard called for a dramatic increase in the Fed’s overnight lending rate to more than 3% this year, and said in a statement Friday that he not only favored a half-point increase this week, but rate increases at a pace that would require half-point increases at five of the Fed’s six remaining meetings this year.

The comments follow the Fed’s decision on Wednesday to raise its key lending rate by a quarter of a percentage point. It also projected that the federal funds rate would reach a range of 1.75% to 2% by the end of 2022 and 2.8% next year.

On Friday, Federal Reserve Governor Chris Waller said economic risks around the war in Ukraine led him to vote in favor of a quarter percentage point rate increase at the Fed meeting this week.

“For the dollar, hawkish Fed speak has put some wind back in its sails. It is playing up the more hawkish outlook for Fed policy. While the Fed was hawkish this week, their outlook for rates was still generally in line with market expectations.

The US dollar index was up 0.5% at 98.413 after declining every other day this week. The dollar was up 0.5% against the Japanese yen and rose to its highest in six years. The Bank of Japan left its ultra-accommodative policy settings unchanged on Friday, as widely expected, leaving it an outlier among developed-world central banks which are exiting coronavirus pandemic emergency measures.

The euro weakened on Friday but was set for its biggest weekly gain in six weeks as investors watched developments in the Ukraine-Russia conflict. Russia paid interest due on two sovereign dollar bonds.

The euro declined 0.6% to $1.1028 but remained on track for its biggest weekly percentage gain since the first week of February, when European Central Bank President Christine Lagarde signaled for the first time that interest rates will rise in the euro zone in 2022.

The dollar was up 0.1% versus China’s offshore yuan at 6.3716 yuan, registering little change following US President Joe Biden’s video call on Friday with Chinese President Xi, where Biden sought to prevent Beijing giving new life to Russia’s invasion of Ukraine.