The dollar index held near 16-month highs on Tuesday after Federal Reserve Chair Jerome Powell was picked for a second term, reinforcing market expectations that U.S. interest rates will rise in 2022.

Currency markets have been mostly driven in recent months by market perceptions of the different paces at which global central banks reduce pandemic-era stimulus and raise rates.

“Markets are taking every USD strength story they can get in this environment, which is visible in the moves after Powell’s widely expected reappointment,” said Ima Sammani, FX market analyst at Monex Europe.

Sammani said the dollar strength was also due to rising front-end U.S. yields, which was likely caused by commentary from Federal Reserve policymakers. They include Atlanta Federal Reserve President Raphael Bostic, who said on Monday that speeding up the tapering of asset purchases could give the Fed more room for rate hikes in 2022.

Commerzbank’s head of FX and commodity research, Ulrich Leuchtmann, said that the decision to retain Powell was beneficial for the dollar because it showed President Joe Biden respecting the Federal Reserve’s independence from government.

“Biden has proved to be principled with Monday’s nomination,” he wrote in a note to clients.

At 1135 GMT on Tuesday, the dollar index was at 96.489, little changed on the day and slightly below the 16-month high of 96.603 it reached during Asian trading hours .

Versus Japan’s yen, the dollar rose to its highest in four and a half years, as investors expected U.S. interest rates to diverge from those in Japan.

The Japanese currency is sensitive to moves in U.S. Treasury notes, and two-year U.S. Treasury yields rose 8.5 basis points on Monday to their highest since early March 2020.

The dollar-yen move had eased by 1135 GMT, with the pair flat at 114.865, compared to the peak of 115.160 reached earlier in the session .

The euro was up 0.1% against the dollar at $1.12455, recovering slightly after hitting a 16-month low versus the dollar.

Better than expected euro zone PMI data helped push the euro slightly higher on the day.

However, the euro has lost 2.7% so far this month, hurt by a combination of the European Central Bank’s dovish monetary policy stance and, more recently, a resurgence of COVID-19 cases in Europe.

The World Health Organization warned earlier this month that current transmission rates in 53 European countries are of “grave concern” and Germany’s health minister has called for further restrictions on public spaces.

Turkey’s lira slid to a new record low of 12 versus the dollar . This was its eleventh record low in as many days, after President Tayyip Erdogan defended recent rate cuts and vowed to win an “economic war of independence”.

The Australian dollar was down 0.1% at $0.7218 while the New Zealand dollar was down 0.5% at $0.6923.

The Reserve Bank of New Zealand (RBNZ) is expected to deliver a 25 basis point rate hike on Wednesday, but speculation is rife that the central bank could even go for a 50 basis point increase to counter rising inflationary pressures.

The New Zealand dollar was falling versus the U.S. dollar because investors expect short-dated U.S. yields to rise more than short-dated New Zealand yields.

“The repricing in the curve, based upon the RBNZ forward guidance delivered tomorrow, is likely to be less aggressive than what is currently being priced in the U.S. Treasury curve in the run-up to December’s Fed meeting,” Monex Europe’s Sammani said.

“This dynamic is being priced into NZD today.”

In cryptocurrencies, bitcoin was trading at around $56,300. Earlier this month it had hit a new all-time high of $69,000.