The U.S. dollar rallied on Friday after a blowout jobs report that solidified some bets that the Fed will raise rates aggressively in 2022.
Overview
Markets are pricing in five quarter-point hikes this year which would represent the steepest increase in three decades. The greenback is losing against a few of its G10 counterparts today on profit-taking and a few events abroad, especially repricing interest rate hikes in the Eurozone. There is no major economic data or Fed speakers on today’s docket. The biggest risk event on this week’s calendar is Friday’s Consumer Price Index. Economists expect that prices grew 7.2% on a year-over-year basis in January, up from 7.0% in December. A surprise to the upside could lead some market participants to increase bets that the Federal Reserve would hike rates by 50 bps at their March meeting. In that case, risk sentiment would likely take a hit and boost the greenback.
What to Watch Today…
- No major economic events are scheduled for today
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EUR
After taking it on the chin on Friday, the Euro is advancing in early trading. The pop higher is being attributed to hawkish comments from European Central Bank’s governing council. Klaas Knot, the Dutch Central Bank President said yesterday that he expects the central bank to hike rates in the fourth quarter of this year.
The comment comes after the ECB made a “hawkish pivot” last week and moved away from arguing that there would not be an interest rate hike in this calendar year. ECB President Christine Lagarde is set to give a speech to the European Parliament later this morning.
GBP
The British pound is currently see-sawing between gains and losses this morning. Like its G10 partners, the sterling lost against the U.S. dollar on Friday following strong American jobs data. The pound is struggling to recoup those losses so far today as political risk hangs over the sterling.
Prime Minister Boris Johnson had to replace several of his staff after a series of walkouts last week. The chances of Johnson facing a no-confidence vote seem to increase every hour, so it is a story we are following closely.
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