Dollar reigns as hawkish Fed stands out among central banks

The U.S. dollar traded at its highest in over a year to the euro and near a five-year high against the yen as a hawkish tilt by Federal Reserve policymakers, buoyed by strong U.S. data, contrasted to more dovish monetary outlooks in Europe and Japan.

The dollar index, which measures the greenback against six major peers, eased slightly to 96.759, but still hovered close to Wednesday’s high of 96.938, the strongest level since July 2020.

Various Fed policymakers said they would be open to speeding up the taper of their bond-buying program if high inflation held, and move more quickly to raise interest rates, minutes of the central bank’s Nov. 2-3 policy meeting showed on Wednesday.

San Francisco Federal Reserve Bank President Mary Daly also said in an interview with Yahoo Finance on Wednesday that she could see a case being made to speed up the Fed’s tapering of its bond purchases.

Meanwhile, readings on the labor market and consumer spending outstripped economists’ estimates, while inflation continued to heat up.

“The U.S. economy retained its titanium status,” buoying the dollar, Tapas Strickland, a director of economics at National Australia Bank, wrote in a note to clients.

“Slightly hawkish comments from the normally dovish Daly was also a factor.”

The dollar was little changed at 115.355 yen, holding close to the overnight high of 115.525, a level not seen since January 2017.

The euro edged higher to $1.1210, but still traded within sight of the near 17-month low hit on Wednesday at $1.1186 after German business confidence slumped for a fifth straight month.

While the U.S. calendar is mostly empty on Thursday due to the Thanksgiving holiday, minutes from the European Central Bank’s Oct. 28 meeting are due for release.

In a news conference after the monetary authority left policy unchanged at that meeting, ECB president Christine Lagarde said officials had discussed “inflation, inflation, inflation,” but after “a lot of soul-searching” had stuck to the view that inflationary forces will prove transitory.

Lagarde gives a speech at an ECB legal conference later on Thursday, at which board members Frank Elderson and Edouard Fernandez-Bollo will also participate.

Sterling rose 0.12% to $1.3342 after dipping as low as $1.3317 on Wednesday for the first time in 11 months.

Investors remained focused on whether or not the Bank of England will raise interest rates on Dec. 16.

The BOE wrong-footed many investors when it did not lift rates from record lows of 0.1% at the start of the month, following comments from its governor Andrew Bailey in October that policymakers “will have to act” to head off inflation.

Bailey speaks at Cambridge University later on Thursday.

Elsewhere, the risk-sensitive Australian dollar rose 0.17% to $0.7208, lifting off Wednesday’s $0.7185, its lowest level since September.

The New Zealand dollar gained 0.25% to $0.68895, stabilizing after a slide to a three-month low of $0.6856 the previous day, when the country’s Reserve Bank raised the key rate by a quarter of a percentage point to 0.75%, disappointing bulls hoping for a half point increase.

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