Dollar Down, but Near Year High as Investors Await Fed’s Next Taper Move

The dollar was down on Wednesday morning in Asia but held near a one-year high amid rising speculation that the U.S. Federal Reserve will announce the beginning of asset tapering in November 2021, followed by potential interest rate hikes by the middle of 2022.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.20% to 94.332 by 11:17 PM ET (3:17 AM GMT). It touched 94.563 for the first time since late September 2020 on Tuesday.

The USD/JPY pair edged down 0.13% to 113.45.

The AUD/USD pair inched down 0.07% to 0.7344 while the NZD/USD pair inched up 0.10% to 0.6940.

The USD/CNY pair inched up 0.02% to 6.4475. Chinese trade data, including exports, imports and trade balance, is due later in the day while inflation data, including the consumer and producer price indexes, will be released on Thursday.

The GBP/USD pair was up 0.23% to 1.3617.

Three Fed officials, including Vice Chairman Richard Clarida, said on Tuesday that the U.S. economy has healed enough to begin to scale back the U.S. central bank’s asset-purchase program. Money markets are now pricing about a 50-50 chance of a rate increase by July 2022.

Meanwhile, surging energy prices continue to fuel inflation concerns and increased bets that the Fed could normalize its monetary policy much sooner than planned, sending two-year Treasury yields to their highest levels in more than 18 months during the previous session.

Investors now await the U.S. consumer price index, due later in the day, for clues to the Fed’s interest rate hike timeline.

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

With most Fed policymakers insisting that inflationary pressures are transitory, investors now await comments from Fed Governors Lael Brainard and Michelle Bowman, among others, due to speak later in the day. The central bank will also release the minutes from its latest meeting.

In cryptocurrencies, bitcoin traded around $56,500, after reaching a five-month high of $57,855.79 at the beginning of the week.

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