Dollar close to one-year high ahead of Fed meeting minutes, with the dollar nearing a new high after easing to 1.2 percent
- Summary of the following items:
- Traders now expect a 50% chance of re-election by July next year, with 0 percent chance.
- Market participants will have a chance to look at the CPI data on Wednesday, which will be the next big focus for market participants.
- Increase in U.S. yields maintains pressure on the yen.
The dollar remained close to a one-year high against major peers on Wednesday, amid increasing expectations that the Federal Reserve will announce softer stimulus next month, possibly following interest rate hikes by mid-2022.
Three Fed policymakers said on Tuesday that the United States' economy has recovered enough to begin to scale back the central bank's asset-purchase programme, including Vice Chair Richard Clarida, who said that.
Money markets now price about a 50-50 chance of reducing interest rates by July.
The dollar index, which compares the greenback to six rivals, eased slightly to 94.356 from Tuesday, when it reached 94.563 for the first time since late September 2020.
A rise in energy prices has fueled inflation fears and sparked fears that the Fed will need to move faster to normalise policy than officials had predicted, sending two-year Treasury yields to their highest level in more than 18 months in less than a day.
Higher U.S. yields on Tuesday helped push the dollar to a three-year high against the yen at 113.785 Yen. The pair last traded at 113.575.
The euro changed hands at $1.1551, well within sight of the previous session's $1.001522, its lowest level in nearly 15 months. Traders will examine consumer price data later on Wednesday for additional information on the timing of higher interest rates.
"CPI is the main economic draw" and "has the potential to see Fed rate hike expectations move again, one way or another," said Ray Attrill, national australia bank's head of foreign exchange strategy in Sydney.
Most Fed policymakers continue to believe inflationary pressures will be temporary.
Governors Lael Brainard and Michelle Bowman are among the Fed officials who will speak later on Wednesday, when the minutes of the central bank's September meeting are also due to be released.
"Today's FOMC minutes release may confirm that a November taper announcement may be hard to resist for the Fed but also that there were discussions of the possible consequences of further tightening of U.S. and global financial conditions," said Valentin Marinov, Credit Agricole'' chief financial officer of G10 FX research.
"We further believe that, following the somewhat mixed September employment report and the delay rather than the resolution of the U.S. debt ceiling issue, the Fed may choose for a more gradual QE taper."
Sterling swung into the middle of this month's range, trading a touch higher than Tuesday' at $1.3624.
The risk-averse Aussie dollar traded flat at $0.7347, retracing from Tuesday's one-month high at 0.7384.
Bitcoin traded around $54,765, following a five-month high of $57,855.79 at the beginning of the week.