Dollar hovers near peaks as Fed heads for taper

The dollar hovered near recent peaks versus the euro and the yen on Wednesday as investors waited for the U.S. Federal Reserve to start unwinding its pandemic-era stimulus and to assess Chair Jerome Powell’s take on inflationary pressures.

Moves were small in Asia and at the start of the European trading day in the middle of a busy week for central banks, with the Bank of England meeting on Thursday.

The dollar index traded unchanged on the day at 94.11 , close to its 2021 peak of 94.563 hit last month.

Against the euro the greenback was also flat at $1.1579 , near the $1.1522 low reached in October and which marked the strongest level for the dollar since July 2020.

Dollar/yen traded at 113.94, near a four-year high .

The Fed is expected to announce the tapering of its $120 billion-a-month asset purchase programme in its policy statement at 1800 GMT.

Traders are focused on clues around what that means for rate rises, after a month of seismic bond market moves in anticipation of hikes as soon as next year.

Analysts are divided as to what the Fed meeting and statement will mean for the dollar.

“The dollar bearish case today is that the tapering is widely expected and an inherently dovish Fed, concerned about upsetting the bond market, does not change its statement substantially,” ING strategists wrote.

“Yet at some point, the Fed is going to have to acknowledge that elevated inflation does not ‘largely reflect transitory factors’. Many dovish central banks around the world are already doing this and should the Fed start to show greater concern about this today, U.S. rates and the dollar could get a boost.”

Investors will watch closely for Chair Powell’s assessment of inflation after other central banks have signalled a more hawkish tilt in the face of rising price pressures, although whether that means higher interest rates soon is still to be seen.

“Fed Policy is under challenge in ways that cannot be remembered since the early Volcker years,” said Deutsche Bank strategist Alan Ruskin.

“Inflation is taking off with an economy that has been pricing itself off zero nominal rates and dramatic negative real rates for the last 18 months,” he said.

A day ago, the Reserve Bank of Australia abandoned its short-term yield target and dropped its expectation of holding rates at record lows until 2024, though the Aussie fell because the bank also pushed back on aggressive pricing for 2022 hikes.

The Aussie had dropped 1.2% against the dollar on Tuesday and sat at $0.7448 on Wednesday, up 0.3% from the session open. The kiwi was also dragged 1% lower, but found support on Wednesday from strong labour data and hovered at $0.7134, up 0.3%.

Money markets are pricing in a 15 basis point hike from the Bank of England on Thursday, although a weaker pound this week suggest some nervousness that the BoE could disappoint.

Sterling fell to a two-week low at $1.3606.

Dollar wallows near one-month low as strong euro, stock rally weigh

The dollar languished near its weakest level in a month against major peers on Friday, hurt by a stronger euro as traders bet on earlier European interest rate hikes and as an equity rally sapped demand for safer assets.

New Zealand’s dollar sagged amid a slide in consumer confidence, while cryptocurrency ether climbed to a record high.

The dollar index, which measures the currency against six main rivals including the euro, was little changed at 93.354, close to Thursday’s low at 93.277 — a level not seen since Sept. 27.
ADVERTISING

The euro was largely flat at $1.16855 after rising as high as $1.1692 overnight for the first time since Sept. 28.

Against the yen, another traditional safe haven, the dollar was mostly unchanged at 113.50, continuing to ease back gradually from the almost three-year high of 114.695 reached last week.

An index of global shares rose to the cusp of a record peak this week, powered by an earnings-driven rally to consecutive record highs on Wall Street, including overnight.

The euro was propelled on Thursday after comments by European Central Bank President Christine Lagarde were interpreted in some quarters as not going far enough in affirming the central bank’s dovish stance.

Foreign-exchange markets have become volatile around central bank activity. Big moves began Wednesday with hawkish comments from the Bank of Canada, and were followed on Thursday with an action by the Reserve Bank of Australia and the ECB’s remarks — all ahead of meetings next week of the U.S. Federal Reserve and the Bank of England.

The Fed is widely expected to begin to taper stimulus from next month, with interest rate lift-off following next year.

Lagarde’s “pushback was not forceful enough,” opening the way for the euro to test $1.1680 in the near term, TD Securities strategists wrote in a note.

However, “extrapolating (euro strength) beyond that seems like a big ask a week ahead of the Fed’s meeting where taper will be announced,” they said.

Traders will have their eyes on economic gauges from both regions later in the day, with Europe seeing a preliminary reading of the consumer price index, while the U.S. gets personal spending and income data.

Elsewhere, sterling was almost flat at $.1.37925 as it continued to fluctuate near a one-month high reached last week.

The pound has been buffeted recently by speculation over whether the Bank of England would proceed with an interest rate hike at its meeting next week.

The Australian dollar was largely unchanged at $0.75425, after reaching the highest since early July at $0.75555 in the previous session.

That uptick was fueled when the RBA declined to buy a government bond at the heart of its stimulus program, fanning speculation the central bank will allow rates to rise earlier than expected. The central bank again resisted buying the key bond earlier on Friday.

The New Zealand dollar fell 0.3% to $0.71795 after a gauge of consumer confidence dipped sharply in October.

In cryptocurrencies, ether rose to a record $4,400, while bigger rival bitcoin also gained to trade around $62,000, but down from the record $67,016.50 reached last week.

Dollar edges lower, Australian dollar calms after inflation jump

The U.S. dollar slipped as European markets opened on Wednesday, while the Australian dollar pared gains, having jumped following surprisingly strong inflation data which raised the possibility of sooner-than-planned rate hikes.

Currency markets have been generally quiet in recent sessions as investors wait for the U.S. Federal Reserve meeting next week.

Investors are also looking to policy announcements this week from the European, Canadian and Japanese central banks for clues on the outlook for rates amid a backdrop of supply-side driven global inflation pressures.

At 0802 GMT, the U.S. dollar index was down less than 0.1% at 93.877.

Short-term U.S. Treasury yields spiked overnight as investors bet that inflation would bring forward interest rate rises.

Standard Chartered FX analysts wrote in a client note that they expect currency market risk sentiment to be limited until the Fed next week, where “hawkish risks are still under-priced”.

The Australian dollar was up 0.2% at $0.7513, having reached as high as $0.7536 overnight after data showed that Australian core inflation sped to a six-year high in September, surprising the market. The data prompted a spike in short-term yields.

The Reserve Bank of Australia meets on Tuesday next week and market pricing is at odds with RBA policymakers’ insistence that there will be no rate hikes before 2024.

“The Reserve Bank of Australia (RBA) might be forced into action after all,” wrote Commerzbank analyst Antje Praefcke in a note to clients, referring to rising 3-year yields.

“The market is likely to increasingly assume that the RBA will have to rethink its expansionary monetary policy further due to economic and inflationary developments, which is likely to principally support AUD.”

The U.S. dollar was down around 0.4% against Japan’s yen, with the pair changing hands at 113.745 – still within recent ranges and close to the four-year high of 114.695 the dollar touched against the yen one week ago.

“Short-JPY positions have clearly become a very popular trade among speculators… but it still seems hard to see the yen finding sustained support at the moment,” wrote ING FX strategists in a client note.

“115.00 in USD/JPY now appears a matter of when, rather than if.”

The Bank of Japan meets on Thursday and is widely expected to downgrade its economic assessment, with markets betting on no rate hike in the foreseeable future.

The Canadian dollar was little changed at $1.2402 ahead of Canada’s central bank policy announcement later in the session.

The central bank is expected to raise its inflation forecast and to largely end stimulus from its pandemic-era bond buying program, starting a countdown of sorts to the first interest rate hike since October 2018

The euro was up around 0.1% at $1.1605. The European Central Bank, which meets on Thursday, is expected to take a dovish stance.

The British pound was down 0.2% against the euro at 84.39 pence per euro. The UK’s budget forecasts will be unveiled later in the session but are not expected to impact the pound.

In cryptocurrencies, bitcoin was down 2% at around $59,114 , having been knocked off the all-time high of $67,016.50 it reached last week.

Dollar wavers ahead of central bank meetings in Europe, Japan, Canada

The dollar inched higher against the safe-haven yen while easing a touch against riskier currencies on Tuesday as solid company earnings and a glimmer of improvement in U.S.-China trade ties lifted sentiment, while rates expectations weighed on the euro.

The greenback was last up 0.2% at 113.93 yen and was holding steady against the euro at $1.1599. Moves were slight as traders eye central bank meetings in Europe, Japan and Canada this week and data releases in Australia and the United States.

China’s Vice Premier Liu He and U.S. Treasury Secretary Janet Yellen held a video call which readouts from both sides suggested was at least not acrimonious.

Meanwhile earnings have driven U.S. stock markets to fresh peaks and car-maker and mood barometer Tesla to a valuation above $1 trillion.

The risk-sensitive Australian dollar rose about 0.3% and poked past 75 U.S. cents to $0.7513, China’s yuan was firm near a four-month high at 6.3845 per dollar and the South Korean won hit a seven-week peak.

“The dollar has been reversing lower because of a more risk- on market, and that’s due to earnings coming in better than expected,” said Bank of Singapore analyst Moh Siong Sim, while investors await data and central bank meetings for direction.

The U.S. dollar index held at 93.856 — in between a one-year high of 94.563 hit earlier in the month and a one-month low of 93.483 made on Monday. Analysts expect it might stay there through a slew of central bank meetings in coming days.

“The dollar looks to be finding its feet in the mid-93s,” analysts at Westpac said in a note, as focus turns first to U.S. growth data on Wednesday and then to the European Central Bank’s meeting on Thursday.

Data and policy

Anticipation of the ECB pushing back on market inflation forecasts — as well as a soft German sentiment survey on Monday — have dragged on the euro ahead of Thursday.

The ECB will likely underscore its dovish guidance, while U.S. GDP will show the economy’s rebound stalling, Westpac’s analysts said, though the scene remains set for the Federal Reserve to announce a reduction in bond purchases next week.

“All told that should keep short-term yield spreads trending in the dollar’s favour and leave the dollar with a bid tone.”

Central bank meetings in Japan and Canada are also scheduled this week and rising inflation in Canada has increased pressure on policymakers to pull forward rate hikes. Traders are watching Wednesday’s meeting for any hawkish clues.

The Canadian dollar stands at C$1.2383 per dollar, having scaled a four-month peak last week.

No changes are expected from the Bank of Japan, although Reuters has reported that policymakers are discussing an end to a COVID-19 loan scheme.

Australian quarterly inflation data due on Wednesday is also likely to set the tone in a tussle between rates markets and the resolutely dovish Reserve Bank of Australia (RBA).

Economists expect growth in Australia’s trimmed mean consumer prices, the central bank’s preferred measure, to have accelerated to an annual pace of 1.8% in the September quarter from 1.6% in the preceding three months.

Beyond Friday, the Fed, the RBA and the Bank of England meet next week with markets having priced a roughly 60% chance that the Bank of England raises interest rates to head off inflation.

Sterling has been firming at the prospect of higher rates and was last steady at $1.3765. The New Zealand dollar rose 0.1% to $0.7174.

Yen skids to four-year low as stocks rally with Treasury yields

U.S. bonds drove currencies on Wednesday, with a rise in long-term rates pushing the dollar to an almost four-year high on the yen, but a decline in shorter-dated yields putting it on the back foot against most other major peers.

The dollar and yen were also under pressure from a global equity rally that sapped demand for assets regarded as safe havens.

The dollar climbed as high as 114.585 yen for the first time since November 2017, with benchmark 10-year Treasury yields touching a fresh five-month high at 1.6630% in Asia. Higher long-term U.S. yields increase the allure of those assets to Japanese investors.

However, two-year Treasury yields hovered around 0.4050% after retreating sharply overnight from Monday’s 19-month high of 0.4480%, signaling a scaling back of bets for early Federal Reserve interest rate hikes.

That contrasted to a rise in wagers this week for faster rate increases in the U.K. and New Zealand, which also pulled up expectations in neighbors like the euro zone and Australia.

“Risk sentiment remains in the ascendancy,” while “a fall-back in front-end U.S. yields, so symptomatic of a slight paring back in expectations for when Fed rates ‘lift-off’ might occur,” dealt the dollar a double-whammy, Ray Attrill, head of FX strategy at National Australia Bank in Sydney, wrote in a research note.

At the same time, markets are coming to “the — highly belated — realization that whether the Fed raises (its policy) rate in 2022 or not until later, other central banks are getting in ahead of them … with the Bank of England likely next cab off the rank as early as next month,” Attrill said.

The dollar index — which measures the greenback versus six rivals, including the yen — was little changed at 93.822 from Tuesday, when it lost about 0.2% and dipped to the lowest this month at 93.501.

The U.S. economic outlook got a little less rosy on Tuesday after data showed that U.S. homebuilding unexpectedly fell in September and permits dropped to a one-year low amid acute shortages of raw materials and labor, supporting expectations that economic growth slowed sharply in the third quarter.

Richmond Fed President Thomas Barkin said on Tuesday that U.S. labor shortages may outlast the coronavirus pandemic and limit overall economic growth unless the country comes up with better education, health and childcare policies to boost the number of people willing and able to work.

The euro was about flat at $1.16335 from Tuesday, when it jumped as high as $1.1670 for the first time since Sept. 29.

Sterling was little changed at $1.3793 after touching a one-month peak of $1.3834 in the previous session.

The risk-sensitive Australian dollar traded slightly weaker at $0.74725, but remained close to Tuesday’s more than three-month top at $0.74855.

New Zealand’s kiwi dollar was little changed at $0.71565, near the highest since June 11 at $0.7172, reached overnight.

In the equities space, Asia-Pacific stocks extended a global rally on Wednesday, with an index of regional shares adding 0.33%.

“The move in equities has seen the USD and JPY shunned,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

“It’s really just pick a JPY cross and see the ‘rip your face off’ move,” he said. “This is a momentum play here and timing the pullback in JPY crosses is key, but it doesn’t feel like we’re going to see a rush to cover JPY shorts anytime soon in this dynamic.”

Yen skids to four-year low as stocks rally with Treasury yields

U.S. bonds drove currencies on Wednesday, with a rise in long-term rates pushing the dollar to an almost four-year high on the yen, but a decline in shorter-dated yields putting it on the back foot against most other major peers.

The dollar and yen were also under pressure from a global equity rally that sapped demand for assets regarded as safe havens.

The dollar climbed as high as 114.585 yen for the first time since November 2017, with benchmark 10-year Treasury yields touching a fresh five-month high at 1.6630% in Asia. Higher long-term U.S. yields increase the allure of those assets to Japanese investors.

However, two-year Treasury yields hovered around 0.4050% after retreating sharply overnight from Monday’s 19-month high of 0.4480%, signaling a scaling back of bets for early Federal Reserve interest rate hikes.

That contrasted to a rise in wagers this week for faster rate increases in the U.K. and New Zealand, which also pulled up expectations in neighbors like the euro zone and Australia.

“Risk sentiment remains in the ascendancy,” while “a fall-back in front-end U.S. yields, so symptomatic of a slight paring back in expectations for when Fed rates ‘lift-off’ might occur,” dealt the dollar a double-whammy, Ray Attrill, head of FX strategy at National Australia Bank in Sydney, wrote in a research note.

At the same time, markets are coming to “the — highly belated — realization that whether the Fed raises (its policy) rate in 2022 or not until later, other central banks are getting in ahead of them … with the Bank of England likely next cab off the rank as early as next month,” Attrill said.

The dollar index — which measures the greenback versus six rivals, including the yen — was little changed at 93.822 from Tuesday, when it lost about 0.2% and dipped to the lowest this month at 93.501.

The U.S. economic outlook got a little less rosy on Tuesday after data showed that U.S. homebuilding unexpectedly fell in September and permits dropped to a one-year low amid acute shortages of raw materials and labor, supporting expectations that economic growth slowed sharply in the third quarter.

Richmond Fed President Thomas Barkin said on Tuesday that U.S. labor shortages may outlast the coronavirus pandemic and limit overall economic growth unless the country comes up with better education, health and childcare policies to boost the number of people willing and able to work.

The euro was about flat at $1.16335 from Tuesday, when it jumped as high as $1.1670 for the first time since Sept. 29.

Sterling was little changed at $1.3793 after touching a one-month peak of $1.3834 in the previous session.

The risk-sensitive Australian dollar traded slightly weaker at $0.74725, but remained close to Tuesday’s more than three-month top at $0.74855.

New Zealand’s kiwi dollar was little changed at $0.71565, near the highest since June 11 at $0.7172, reached overnight.

In the equities space, Asia-Pacific stocks extended a global rally on Wednesday, with an index of regional shares adding 0.33%.

“The move in equities has seen the USD and JPY shunned,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

“It’s really just pick a JPY cross and see the ‘rip your face off’ move,” he said. “This is a momentum play here and timing the pullback in JPY crosses is key, but it doesn’t feel like we’re going to see a rush to cover JPY shorts anytime soon in this dynamic.”

Dollar softens amid bets other central banks to outpace Fed tightening

The dollar languished near the bottom of its recent range against major peers on Tuesday, knocked back by weak U.S. factory data overnight and on market wagers of faster normalization of monetary policy in other countries.

The dollar index, which measures the greenback against six peers, weakened 0.05% to 93.894 from Monday. It has oscillated for the past three weeks between 93.671 and the one-year high of 94.563, reached last Tuesday.

Over the past week though, it has trended lower, with a tapering of Federal Reserve stimulus as early as next month already priced in, along with a first interest-rate increase next year.

A recovery in risk sentiment has also weighed on the safe-haven U.S. currency.

Elsewhere, Bank of England Governor Andrew Bailey sent a fresh signal for early U.K. rate hikes by saying on Sunday that the central bank will “have to act” to counter rising inflation risks. In New Zealand, bets for faster policy normalization were stoked on Monday by data showing the fastest consumer-price inflation in more than a decade.

The U.K. and New Zealand led a rise in short-term bond yields globally, with rates in Europe and Australia climbing comparatively more than those in the U.S., pressuring the dollar.

“The sense that ‘transitory’ inflation will last longer than previously thought has been the main catalyst” as “the market re-calibrated rate hike expectations in most jurisdictions,” Westpac strategists wrote in a research note.

However, the U.S. is likely to be insulated by energy market bottleneck that is “casting an ongoing cloud over rebound prospects in Europe and China,” which “should leave yield spreads at the front end continuing to drift in the USD’s favour,” they said, adding that pullbacks in the dollar index should be limited to 93.70.

However, Westpac remains bullish on New Zealand’s kiwi dollar — which isn’t part of the dollar index — targeting a climb to $0.74 by year-end, and recommending buying any dips to $0.6985.

The kiwi rose 0.11% to $0.7093, edging back toward a one-month high of $0.7105 reached on Monday.

The Aussie dollar gained 0.09% to $0.74225, approaching a more than one-month high of $0.7440 touched at the end of last week, even after minutes of the Reserve Bank of Australia’s September meeting showed on Tuesday that policymakers are concerned tighter policy could harm the labor market.

Sterling added 0.13% to $1.37455, nearing Friday’s one-month peak at $1.3773.

The euro advanced 0.09% to $1.16205, approaching the top of this month’s trading range.

Against the safe-haven yen, the dollar was little changed at 114.275, but not far from the almost three-year high of 114.47 touched on Friday.

U.S. manufacturing output was hurt as an ongoing global shortage of semiconductors depressed motor vehicle output, providing further evidence that supply constraints were hampering economic growth.

“Our strong USD forecast published in early July reflected — among other things — U.S. economic outperformance, but the USD’s drivers may be changing,” Commonwealth Bank of Australia strategist Joseph Capurso wrote in a client note.

“The spike in global inflation and interest rates may support the USD as a safe haven if short-term interest rates price in a global monetary tightening cycle that it so strong it forces equities to correct lower,” with evidence of that scenario likely seen in a decline in USD/JPY and AUD/JPY, he said.

Dollar wavering as global inflation surges; kiwi jumps

The dollar made a wobbly start to the week on Monday with the kiwi and sterling edging higher after a red-hot inflation readout in New Zealand and hawkish remarks from Britain’s central bank chief that put rate rises in investors’ sights.

The dollar index has now slipped about 0.6% from last week’s 2021 highs as investors figure that while price pressures might pull forward hikes by the Federal Reserve, other central banks may need to be more aggressive over the tightening cycle.

New Zealand reported its biggest quarterly jump in consumer prices in a decade on Monday. Bank of England Governor Andrew Bailey said on Sunday that surging energy prices would prolong a pulse in inflation and policymakers “will have to act” if they see risks.

The data lifted the kiwi by about 0.3% to a one-month high of $0.7105. Sterling rose 0.1% to $1.3762, just shy of Friday’s one-month high of $1.3773.

The Australian dollar was also near its highest in six weeks and oscillated around $0.7413. Oil futures stood at fresh three-year highs and stoked expectations that even more price rises are heading along global supply chains.

“The rest of the world is probably outpacing the U.S. in inflation, for now, and it puts more pressure on those central banks than the U.S. one,” said Westpac currency analyst Imre Speizer.

In New Zealand, he said, the surprise leap in prices would only reinforce the need for the Reserve Bank of New Zealand to stay the course on its hiking trajectory, he added.

The dollar made small gains on the euro and was steady on the yen, last trading for $1.1587 per euro and buying 114.22 yen.

Bitcoin, vaunted as an inflation hedge and riding high on hopes for U.S. approval of a futures-based exchange traded fund that would funnel cash into the sector, hovered just shy of its record peak of $64,895. It last bought $62,233.

Fed funds futures are now fully pricing U.S. rate hikes to begin next September as inflation pressures rise, however a relatively shallow cycle is expected, with pricing suggesting rates could linger at 1.5% through 2026.

Swaps pricing suggests swifter and more prolonged action is now more likely elsewhere — with an almost 30% chance of a Bank of England rate hike this year and nearly 80 basis points of hikes priced through 2022.

Even in Australia, where the central bank has insisted it expects to keep rates on hold until 2024, swaps are pricing hikes to start in mid 2022 and for 100 bps of hikes before 2024 even begins.

Chinese gross domestic product data is due on Monday, with analysts expecting a slowdown, and there is an intense focus on China’s credit markets where a slew of property developers have coupon payments due.

The yuan was firm in offshore trade at 6.4324 per dollar.

Dollar set to snap 5-week win but yen hits lowest in almost 3 years

The dollar headed for its first weekly decline versus major peers since the start of last month, falling back from a one-year high as traders turned their attention to when the U.S. Federal Reserve will start raising interest rates.

The dollar index, which measures the greenback against six rivals, was little changed at 94.034 on Friday. It is on track for about a 0.1% decline this week despite hitting the highest since Sept. 25 of last year at 94.563 on Tuesday.

Improved market sentiment, which has lifted global stocks, commodity prices and bond yields, is also weighing on the safe-haven dollar.

Only against the yen — another safe haven — has the dollar managed to maintain the momentum of the past five weeks, rising 0.16% on Friday and touching 113.885 yen for the first time since December of 2018.

“We end the week with risk flying,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

“Equities are going up hard, and the JPY has no place as a hedge,” because it would just drag on overall portfolio performance, Weston said.

The greenback had rallied since early September on expectations the U.S. central bank would tighten monetary policy more quickly than previously expected amid an improving economy and surging energy prices.

Minutes of the Fed’s September meeting confirmed this week that a tapering of stimulus is all but certain to start this year, although policymakers are sharply divided over inflation and what they should do about it.

Money markets are currently pricing in about 50/50 odds of a 25 basis point rate hike by July.

The dollar index is “looking a little shaky, but any slippage should prove modest” with Fed tapering now imminent, Westpac strategists wrote in a client note.

Any dips in the index should be limited to 93.70, they said.

The next major test of the U.S. economy’s health comes later on Friday with the release of retail sales figures.

The euro slipped 0.09% to $1.1588 after touching $1.1624 on Thursday for the first time since Sept. 4.

Sterling was little changed at $1.36705 following its climb to the highest since Sept. 24 at $1.3734 overnight.

The risk-sensitive Aussie dollar edged down 0.07% to $0.74105, after reaching a more than one-month high of $0.74265 in the previous session.

New Zealand’s kiwi dollar lost 0.06% to $0.7033, holding most of Thursday’s 1% surge, which took it to the highest since Sept. 24 at $0.70415.

In cryptocurrencies, bitcoin held around $57,200 after touching a five-month high of $58,550 on Thursday.

Smaller rival ether traded at around $3,780, still close to a more than one-month high of $3,825.89 reached overnight.

Dollar eases from one-year high before CPI data as Fed clues sought

The dollar eased back from a one-year high versus major peers on Wednesday ahead of U.S. consumer price data that could provide additional clues on when the Federal Reserve will taper stimulus and raise interest rates.

The dollar index, which measures the greenback against six rivals, slipped 0.18% to 94.358 from Tuesday, when it touched 94.563 for the first time since late September 2020.

The U.S. currency weakened 0.13% to 113.465 yen, down from a three-year high of 113.785 yen reached in the previous session.

The euro climbed 0.18% to $1.1551, off Tuesday’s $1.1522, its lowest in nearly 15 months.

“The CPI is going to be really important, so there may be a little bit of positioning ahead of that,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney.

“The risk is for inflation to stay high, and that would bring forward market expectations for the timing and pace of rate hikes, and that will support the U.S. dollar. It’s off a little bit today but I think the dollar has more upside.”

The dollar gained on Tuesday amid rising expectations the Fed will announce a tapering of stimulus next month, with interest rate hikes following next year.

Money markets priced about a 50-50 chance of a rate increase by July, after three Fed policymakers said overnight that the U.S. economy has healed enough to begin to scale back the central bank’s asset-purchase program, including Vice Chair Richard Clarida.

Meanwhile, a surge in energy prices has fueled inflation concerns and stoked bets that the Fed may need to move faster to normalize policy than officials had projected.

“CPI is the main economic draw” on Wednesday, and “has the potential to see Fed rate hike expectations move again, one way or another,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney.

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

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

Sterling strengthened 0.19% to $1.36135, but remained around the middle of this month’s range.

The Aussie dollar slipped 0.19% to $0.73375, retreating from Tuesday’s one-month high at $0.7384.

Bitcoin traded around $56,200, after reaching a five-month high of $57,855.79 at the start of the week.