Dollar Holds Near 1-Year High Amid Bets For Earlier Fed Rate Hike

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A photo illustration shows US $ 100 banknotes taken in Tokyo on August 2, 2011. REUTERS / Yuriko Nakao / File Photo

  • Traders now see 50% chance of a Fed hike by July of next year
  • Next Wednesday’s CPI big target for the market
  • US rate hike keeps pressure on the yen

TOKYO, Oct.13 (Reuters) – The dollar held close to a year-long high against its major peers on Wednesday, amid rising expectations, the Federal Reserve will announce cutbacks on stimulus on next month, possibly followed by an interest rate hike by mid-2022.

Three Fed policymakers said overnight that the US economy had recovered enough to start cutting back on the central bank’s asset purchase program, including Vice President Richard Clarida. Read more

Money markets are now evaluating about 50-50 chances of a rate hike by July.

The dollar index, which measures the greenback against six rivals, eased slightly to 94.460 from Tuesday, as it hit 94.563 for the first time since late September 2020.

A surge in energy prices fueled inflation concerns and fueled bets that the Fed may need to act faster to normalize policy than officials had expected, sending yields to the Two-year treasury at their highest level in over 18 months overnight.

Rising US yields helped push the dollar to a three-year high against the yen on Tuesday at 113,785 yen. The pair last traded at 113.485.

The euro changed hands at $ 1.1541, prominent in the previous session’s $ 1.1522, its lowest in nearly 15 months. Traders will focus on consumer price data later Wednesday to better understand the timing of higher rates.

“The CPI is the main economic draw” and “has the potential to see the Fed’s rate hike expectations shift again, one way or another,” said Ray Attrill, chief strategy officer exchange at the National Australia Bank in Sydney.

Most Fed policymakers continue to say that inflationary pressures will prove to be transitory.

Governors Lael Brainard and Michelle Bowman are among Fed officials expected to speak later Wednesday, when the minutes of the central bank’s September meeting are also due to be released.

The British pound meandered through the middle of this month’s range, trading little from Tuesday at $ 1.3596.

The risk-sensitive Australian dollar slipped 0.2% to $ 0.7335, retreating from Tuesday’s one-month high of $ 0.7384.

Bitcoin traded around $ 56,500, after hitting a five-month high of $ 57,855.79 earlier this week.

Reporting by Kevin Buckland; Editing by Ana Nicolaci da Costa

Our standards: Thomson Reuters Trust Principles.


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