Dollar surges to six-week high as interest rate expectations rise

The US dollar surged to a six-week high on Friday, buoyed by robust economic data and hawkish remarks from Federal Reserve officials, which have led traders to bet on more interest rate increases.

Data released on Thursday showed a surprising fall in new claims for unemployment benefits in the US, and monthly producer prices rose by the most in seven months in January. St. Louis Fed President James Bullard also supported further rate increases that could take borrowing costs to around 5.25 percent to 5.5 percent.

Goldman Sachs economists have increased their expectations for Fed interest rate hikes this year, now anticipating three consecutive 25 basis point increases in March, May and June. This would bring rates up to 5.25 percent to 5.5 percent, in light of the stronger growth and inflation news.

The euro fell by 0.38 percent to $1.063, its lowest since January 6, while the US dollar index rose by 0.64 percent to 104.52, its highest since mid-January. The dollar also gained against the Japanese yen, rising 0.85 percent to 135.06, the highest since mid-December.

Sterling was down by 0.45 percent to $1.193, despite British consumers increasing their shopping unexpectedly in January. The Swiss franc also experienced the dollar's surge, with the dollar rising 0.79 percent to 0.933 francs, its highest level since mid-January.

The benchmark US Treasury yields have also surged as investors have raised their expectations for where interest rates will end up. The yield on the two-year US Treasury reached a more than three-month high of 4.718 percent on Friday.

Meanwhile, European Central Bank officials have also indicated that they expect euro zone rates to continue rising. German ECB official Isabel Schnabel warned of the risk of inflation proving to be more persistent than is currently priced by financial markets.

Overall, the strong US economic data and comments from Federal Reserve officials have bolstered the US dollar and led traders to anticipate more interest rate hikes, which could have significant implications for global markets in the coming months.