Dollar Up on Interest Rate Hikes Bets

The dollar was up on Thursday morning in Asia, as U.S. red hot inflation data drove the expectations for more monetary tightening from the U.S. Federal Reserve. driven by both expectations for faster Federal Reserve policy tightening and safe-haven flows amid growing fears of a recession.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies gained 0.43% to 108.42 by 1:34 AM ET (5:34 AM GMT). The USD/JPY pair jumped 0.69% to 138.37. The AUD/USD pair inched up 0.06% to 0.6764, and the NZD/USD pair inched down 0.09% to 0.6126.

The USD/CNY pair edged up 0.15% to 6.7287, while the GBP/USD pair fell 0.26% to 1.1859. U.S. Consumer Price Index (CPI) rose to 9.1% in June year-on-year, a four-decade high. predicted a reading of 8.8% while 8.6% was recorded in May. Investors speculated whether the 9.1% reading marks the peak.

“The bottom line is U.S. inflation momentum is rising,” Commonwealth Bank of Australia (OTC:CMWAY) analyst Kristina Clifton said in a note. “Stubbornly high inflation increases the risk that the FOMC will continue to hike aggressively and trigger a recession,” she said. “We expect that recession fears will continue to support USD.”

Markets expected a historic one percentage-point Fed interest-rate hike later this month. Fed Bank of Atlanta President Raphael Bostic said “everything is in play” to combat price pressures.

Fed Bank of Cleveland President Loretta Mester told Bloomberg that the CPI report was uniformly bad and that the central bank will need to go well beyond the neutral level of rates. Other global central banks are delivering more monetary tightening to bring down the soaring commodity prices.

In Asia Pacific, Singapore’s central bank unexpectedly tightened monetary policy on Thursday, sending the currency higher. Meanwhile, a Chinese central bank official said liquidity in the interbank market is more than “reasonably ample,” a sign that further rate cuts are unlikely.