Dollar jumps as Powell flags higher terminal rate

By Karen Brettell

NEW YORK (Reuters) – The dollar extended gains against a basket of currencies on Tuesday after Federal Reserve Chair Jerome Powell said that the U.S. central bank will stay the course until the job is done, adding that the ultimate level of interest rates is likely to be higher than previously anticipated.

Powell also said that the Fed is prepared to increase the pace of rate hikes if data indicates it is warranted. That comes after the bank slowed the pace of its tightening to 25 basis points at its last two meetings, following larger hikes last year.

“Powell is explicitly talking about a higher target for interest rates. This is something that the market has been talking about but obviously hasn’t been fully priced in,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.

Fed funds futures traders raised bets that the Fed will hike rates by 50 basis points at its March 21-22 meeting to 56% after Powell’s comments. A 25 basis points increase is now seen as a 44% probability.

Investors will be closely watching the Fed’s updated “dot plot” of rate expectations at March’s meeting for further indications of how high Fed officials expect to raise rates.

“The market is zeroed in on the March 22 ‘dot plot’ for a clear signal” of what the terminal rate is likely to be, said Adam Button, chief currency analyst at ForexLive in Toronto.

Traders are now pricing for the rate to peak at 5.57% in September.

The dollar index was last up 0.70% on the day at 104.97. The euro dropped 0.64% to $1.0615.

The greenback gained 0.45% to 136.50 Japanese yen.

Sterling slipped 0.95% to $1.1913, after getting as low as $1.1880, the lowest since Jan. 6.

The Aussie dollar also continued to underperform, dropping to $0.6605, the lowest since Nov. 22.

It had slid earlier after the Reserve Bank of Australia (RBA) raised its cash rate by 25 basis points to the highest in more than a decade, as was expected, but suggested it might be nearly done tightening.

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Currency bid prices at 10:37AM (1537 GMT)

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

Previous Change

Session

Dollar index 104.9700 104.2600 +0.70% 1.430% +105.2600 +104.1100

Euro/Dollar $1.0615 $1.0684 -0.64% -0.93% +$1.0695 +$1.0587

Dollar/Yen 136.4950 135.9250 +0.45% +4.13% +136.9000 +135.5600

Euro/Yen 144.89 145.17 -0.19% +3.27% +145.4400 +144.6100

Dollar/Swiss 0.9382 0.9308 +0.80% +1.47% +0.9398 +0.9288

Sterling/Dollar $1.1913 $1.2027 -0.95% -1.50% +$1.2065 +$1.1880

Dollar/Canadian 1.3698 1.3612 +0.65% +1.11% +1.3726 +1.3600

Aussie/Dollar $0.6629 $0.6732 -1.55% -2.77% +$0.6748 +$0.6605

Euro/Swiss 0.9959 0.9942 +0.17% +0.65% +0.9965 +0.9926

Euro/Sterling 0.8907 0.8880 +0.30% +0.71% +0.8915 +0.8858

NZ $0.6158 $0.6197 -0.66% -3.05% +$0.6221 +$0.6140

Dollar/Dollar

Dollar/Norway 10.5890 10.4290 +1.80% +8.18% +10.6160 +10.4060

Euro/Norway 11.2452 11.1294 +1.04% +7.16% +11.2572 +11.1067

Dollar/Sweden 10.6296 10.4478 +1.09% +2.13% +10.6731 +10.4202

Euro/Sweden 11.2849 11.1629 +1.09% +1.21% +11.3110 +11.1400

(Reporting by Karen Brettell; additional reporting by Sinead Carew in New York; Editing by Jason Neely and Andrea Ricci)