Tom Westbrook

SINGAPORE, (Reuters) – The dollar rose in Asia after higher-than-expected U.S. Inflation and hawkish remarks from a Federal Reserve officer unleashed a flood of bets for aggressive rate increases. However similar pressures around the world kept gains under control.

On Thursday, data from the United States showed that consumer prices rose by 7.5% year over year in January. It was a fourth consecutive month of above 6%. The increase is slightly greater than analysts’ expectations for a 7.3% gain.

Bloomberg heard from James Bullard of St. Louis Fed, who stated to Bloomberg that he wanted 100 basis point hikes before July.

Volatility overnight traded saw the yields of Treasury securities jump and the dollar climb to a 5-week high at 116.34 yen. [US/]

After oscillating against other currencies, the greenback turned generally firmer during the Asia session. Euro was down 0.4% last night at $1.1382, while the Australian and New Zealand dollar dropped over 0.5%. [AUD/]

Rates futures have shifted to price a better-than-two-in-three chance of a 50 bp hike next month and there is even chatter of an emergency hike sooner. By the end of this year, more than 160bps of tightening are priced in.

Kim Mundy, strategist at Commonwealth Bank of Australia (OTC) in Sydney said that there is a sense of urgency.

“But, the Fed isn’t the only central banking facing this inflation conundrum,” she stated. She pointed out that a hawkish move at the European Central Bank last Week in particular could cap dollar gains by eliminating a headwind to the euro.

Europe’s bond market is expecting more hawkishness from the ECB when it updates its economic projections next week. Swaps pricing suggests a 30% chance that the Bank of England will raise rates by 50 bps next Month.

Sterling has remained fairly stable in the face of rising hike expectations. The last time it fell 0.2%, the price was $1.3529.

Philip Lowe, the Governor of the Reserve Bank of Australia on Friday was dovish and opened up to possible hikes for this year. But he cautioned that there are risks when moving too quickly.

Markets have been positioning themselves far more aggressively, and the dollar at $0.7130 is currently on track to a weekly gain of around 0.7%% despite its Friday strength.

Last at $0.6639 the. A second consecutive week of gains is possible and an increase in rates from the Reserve Bank of New Zealand could be expected later in the month.[AUD/]

After the central bank stated that inflation surges were temporary, it was the outliers who have been penalized. The Swedish crown was dunked at 2% by the Swedish Crown on Thursday.

After several days of pressure from the bond market, Bank of Japan has also reiterated its resolve to lower borrowing costs. They have promised to buy unlimited 10-year bonds worth 0.25%.

The yen fell to a more-than-three-month low on the euro on Thursday, though it steadied in Asia trade at 132.11 yen per euro. On Friday, the yen was 0.2% higher at 95.846 but still fell below its 50 day moving average.

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At 0441 GMT, currency bid prices

Description: RIC U.S. Last Close Pct. Change YTD High Bid Low

Before Change

Session

Euro/Dollar

$1.1381 $1.1427 -0.39% +0.12% +1.1435 +1.1378

Dollar/Yen

116.0850 115.8800 +0.18% +0.93% +116.1650 +115.9800

Euro/Yen

132.12 132.56 -0.33% +1.38% +132.6100 +132.1100

Dollar/Swiss

0.9275 0.9253 +0.24% +1.68% +0.9278 +0.9253

Sterling/Dollar

1.3534 1.3561 -0.19% +0.08% +1.3562 +1.3530

Dollar/Canadian

1.2744 1.2724 +0.14% +0.78% +1.2750 +1.2718

Aussie/Dollar

0.7130 0.7169 -0.54% -1.91% +0.7168 +0.7127

NZ

Dollar/Dollar 0.6639 0.6676 -0.55% -3.00% +0.6675 +0.6639

All locations

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Europe’s top spots

Volatilities

Tokyo Forex market information from BOJ

(The story was rewritten to rectify a typographical error in the headline.