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Dollar hits one-month high as traders envisage Fed rate hike

This illustration shows 100 US dollar bills on an American flag.

Igor Golovniov | SOPA pictures | LightRakete | Getty Images

The dollar hit its highest level in a month on Thursday, pushing the euro towards key support levels after the Federal Reserve paved the way for rate hikes next year – much earlier than expected by its developed market competitors.

The US Federal Reserve left its monetary policy settings unchanged overnight and, as expected, did not announce the start of the reduction in asset purchases. However, the Federal Reserve said “a moderation in the pace of asset purchases may soon be warranted,” and Fed chairman Jerome Powell said board members believed the throttling could be completed around mid-2022, paving the way for after that Rate hikes could pave the way.

The dollar rose broadly on his comments, particularly against the euro and the yen. The US yield curve flattened and Fed fund futures markets moved to fully price in a 50 percent chance of a rate hike in October and a 25 basis point hike in December.

A one-month low of $ 1.1684 in early Asia trade, the euro is near its low of $ 1.1664 in 2021 and not far from a key support at $ 1.1602 from which to break could pave the way for a decline to as low as $ 1.14.

Liquidity was brightened by a bank holiday in Japan on Thursday.

“Powell gave no indication of the start of the taper, he said there was broad agreement on the end of the taper, which ‘will expire around the middle of next year,'” said John Briggs, strategist at NatWest Markets.

“In our opinion, this is more important than the start of the rejuvenation, as the clock starts with when the next hike can take place.”

The yen also lost ground after Powell’s press conference, falling 0.5% during the session – its sharpest drop in more than three months – to hit 109.87 the dollar, about the middle of a range it has held since March .

The dollar index reached a monthly high of 93,526.

The Bank of Japan, which met on Wednesday, made no policy changes and will see no rate hikes for the foreseeable future, while the European Central Bank is also lagging behind the Fed.

The new forecasts by Fed members provide for increases from 2022.

The yen, a safe haven, had also suffered a bit on Wednesday as developer China Evergrande offered some relief to the market after its main entity agreed to settle a bond interest payment with some domestic creditors.

She still has to pay $ 83.5 million in interest on an offshore bond due Thursday.

The Australian and New Zealand dollars gave up gains on Powell’s remarks and traded slightly lower in Asia, with the Aussie most recently falling 0.1% to $ 0.7323 while the kiwi fell below $ 0.70 to $ 0 , Fell $ 6,992.

The Bank of England meets on Thursday with traders expecting it to keep rates stable but be wary of Hawkish surprises.

The pound sterling is hovering just above the major chart support at $ 1.3615.

Norges Bank is widely expected to make the first hike among G10 central banks on Thursday. The Norwegian krone remained stable in Asia at 8.669 per dollar.

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