The dollar rose on Wednesday in the wake of stubbornly high U.S. inflation data and tough talk on interest rates from Federal Reserve officials.
U.S. consumer price index (CPI) inflation accelerated month-on-month in January, rising 0.5% as expected, due in part to higher rental and food costs.
Year-on-year, prices rose 6.4%. That was down from 6.5% in December but above economists' expectations of 6.2%.
The dollar climbed against most major currencies on Wednesday, with the euro down 0.11% to $1.073. The euro touched a 10-month high of $1.103 on Feb. 2 but has since slipped. "It is a reaction to the CPI data, and also the tone of Fed officials recently," said Jane Foley, head of FX strategy at Rabobank.
"The market is now expecting a higher peak for the Fed funds rate than they were expecting even a week or two ago."
In December, Fed board members' median projection foresaw interestt rates peaking at 5.1% this year.
But interest rate futures markets now price a peak above 5.2% and traders are becoming less sure that interest rate cuts are coming in 2023. Rates currently stand at 4.5% to 4.75%.
With the strength in the labour market, clearly there are risks that inflation stays higher for longer than expected, or that we might need to raise rates higher," New York Fed President John Williams said in New York.
