(Feb 17): The dollar advanced against all major peers Friday, with a gauge of the currency wiping out its losses for the year, on growing bets for more Federal Reserve rate hikes.

The Bloomberg Dollar Spot Index climbed more than 0.3%, putting it on track to erase its losses for 2023, which at one stage exceeded 2.5%. The yen and New Zealand dollar led declines among Group-of-10 members, while Asia’s emerging-market currencies also fell, led by the South Korean won.

On Thursday, two of the Federal Reserve’s most hawkish policymakers signaled they may favor returning to bigger rate hikes in the future to vanquish inflation. Data showed producer prices rebounded in January by more than expected, underscoring persistent inflationary pressures which are increasing expectations of peak Fed rates.

“Talk of a 50bp rate rise by FOMC hawks James Bullard and Loretta Mester is pushing UST short-end yields higher and taking the dollar along for the ride,” said David Forrester, senior FX strategist at Credit Agricole CIB in Singapore. “Strong US cyclical and inflation data have investors finally coming around to the idea the Fed is correct and that rates will have to go significantly higher in order to tame inflation.”

The dollar’s gains are giving traders a wake up call on a widely-held bearish view on the world’s reserve currency, according to Viraj Patel, strategist at Vanda Research in London. Investors had placed too much emphasis on a dovish Fed pivot and global growth outperforming the US — bets that may have been premature.

“In recent weeks, we’ve had a reality check that the Fed might not be much more dovish than other central banks this year,” he said. “We’re getting to dollar levels that are a fair reflection of where the US macro outlook is.”