Dollar one-year high, Fed rate

On Wednesday, the dollar stayed at a one-year high against critical rivals, owing to increased expectations that the Federal Reserve will announce a withdrawal of stimulus next month. This will cause interest rate hikes by mid-2022.

Three Fed policymakers, including Vice Chair Richard Clarida, suggested overnight that the US economy has recovered sufficiently to reduce the central bank’s asset-purchase program.

Money markets currently price in a 50-50 possibility of a rate hike by July. The dollar index measures the greenback against six rival currencies. It fell marginally to 94.460 from 94.563 on Tuesday, the lowest level since late September 2020.

Energy price increases have spurred inflation fears and fueled speculation that the Fed may need to move faster than expected to normalize policy. This sent two-year Treasury yields to their highest level in over 18 months overnight.

Higher US yields aided the dollar’s rise to a three-year high, reaching 113.785 yen. The price of the pair was 113.485 the last time it traded.

Currencies

The euro traded at 1.1541, close to the previous session’s low of 1.1522, its lowest level in nearly 15 months. Sterling remained in the middle of this month’s range, trading at $1.3596, hardly changed from Tuesday.

The risk-sensitive Australian dollar fell 0.2 per cent to $0.7335, reversing Tuesday’s one-month high of $0.7384.

Bitcoin was trading 56,500, down from a five-month high of 57,855.79 earlier in the week.

Traders

Traders will pay close attention to consumer pricing data later on Wednesday for more insight into the timeframe of increasing interest rates.

According to Ray Attrill, the critical economic attraction is CPI, which “has the potential to see Fed rate hike expectations swing again, one way or another.” The majority of Fed policymakers still feel that inflationary pressures are only temporary.

Governors Lael Brainard and Michelle Bowman will be among those appearing later Wednesday when the minutes of the September meeting of the Federal Reserve will also be disclosed. Italy will raise 6.5 billion euros in bond auctions from three, seven, and 30-year bonds. In comparison, Germany will seek 1 billion euros from a 30-year bond.