Hawkish Fed Talk Roils Risk

The dollar index (DXY) advanced towards Thursday's post-CPI highs, as the greenback outperformed in G10 FX space. The Asia-Pacific timezone played catch-up with hawkish Fed repricing, after U.S. CPI smashed expectations, while St. Louis Fed chief Bullard doubled down on his calls for bolder tightening steps, citing the need to contain runaway inflation. The policymaker expressed support for a full percentage point worth of rate increases by July, which could include a supercharged 50bp hike, and raised the prospect of a rate rise outside of the FOMC's scheduled meetings.

• The prospect of a more aggressive policy tightening from the Fed undermined appetite for riskier currencies, with the swap market now fully pricing in seven standard-size rate hikes by the end of the year. Traditional risk proxies such as AUD, NZD and NOK went offered, albeit CAD managed to stay afloat.
• The Aussie dollar underperformed as Gov Lowe told lawmakers that the Reserve Bank is prepared to tolerate inflation "above 3% for a period of time," adding that it is too early "to conclude that inflation is sustainably in the target range."
• The yen garnered some strength on the back of general risk aversion. Spot USD/JPY oscillated in close proximity to key resistance from Jan Feb 10/Jan 4 highs of Y116.34/35.
• Preliminary quarterly growth data & monthly economic activity indicators out of the UK will take focus later today, with ECB's Elderson due to take part in a panel discussion.