Dollar Buoyant As Fed Readies To Step Up Inflation Fight

U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. Reuters / DADO RUVIC

The dollar hovered near a two-year high against a basket of majors on Thursday and pushed commodity currencies further down from recent peaks, after meeting minutes showed the Federal Reserve preparing to move aggressively to head off inflation.

The U.S. dollar index, which measures the greenback against six currencies, held at 99.546 in Asia trade - close to Wednesday's top of 99.778 which was its highest since May 2020.

The Australian and New Zealand dollars fell about 0.4% to sit more than 2% beneath highs struck on Tuesday as the Fed's tone has offset a hawkish shift from Australia's central bank.

The euro scraped itself from a one-month trough of $1.0874 to hit $1.0912 in the Tokyo afternoon, but remains under pressure as minutes from the European Central Bank due later in the day are unlikely to sound as decisive as the Fed's.

Minutes from the March Fed meeting showed "many" participants were prepared to raise interest rates in 50-basis-point increments in coming months.

They also showed general agreement about cutting $95 billion a month from asset holdings which had ballooned during the pandemic. That was more or less in line with market expectations, but policymakers preparedness to begin as soon as May was confronting and will likely keep the dollar elevated.

"The minutes lend support to the view that peak-hawk has not been reached at the Fed just yet," said analysts at OCBC Bank in Singapore.

"In that context, the risk-reward favours dollar upside on the medium term, or at least for the dollar to stay in a supported stance. With the dollar index breaking through the 99.40/50 resistance, the next target may be the 100.00 mark."

Minutes from the ECB's March meeting, due later in the day, will be watched for insight into policymakers' delicate balancing act to manage soaring inflation and slowing growth.

An increasingly close-looking presidential election in France is another wildcard, and the risk of far-right candidate Marine Le Pen beating incumbent Emmanuel Macron has dragged on the euro and French debt ahead of Sunday's first-round vote.

Elsewhere the yen was pinned down near a one-week low and last traded at 123.67 to the dollar. The Australian dollar was down 0.45% to $0.7475 and the kiwi was off 0.35% to $0.6891.

Sterling held at $1.3076.

Broad selling of equities and other risk assets as higher interest rates loom has also hurt cryptocurrencies, and bitcoin nursed Wednesday's 5% drop at $43,000. [MKTS/GLOB]

========================================================

Currency bid prices at 0528 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0911 $1.0895 +0.15% +0.00% +1.0917 +1.0896

Dollar/Yen

123.6650 123.7850 -0.06% +0.00% +123.9300 +123.4750

Euro/Yen

134.94 134.85 +0.07% +0.00% +135.0500 +134.6600

Dollar/Swiss