The dollar traded near a one-week high against a basket of major currencies on Thursday, rising after minutes of the Federal Reserve's January meeting showed policymakers were more confident of the need to keep raising interest rates.
The dollar index last stood at 90.117, after reaching a high of 90.166, its highest level since February 13. That marked a gain of about 2.2 per cent from a three-year low near 88.25, set last week.
A more upbeat take on inflation in the minutes of the Fed's Jan. 30-31 policy meeting bolstered expectations for rate hikes. US short-term interest-rate futures continued to reflect firm expectations that the Fed will raise rates three times this year.
The minutes also showed that voting members as well as the wider group of policymakers had upgraded their forecasts for the economic outlook since December.
Market participants probably interpreted the Fed minutes as leaving open the possibility that the central bank could raise interest rates four times this year, said Hirofumi Suzuki, an economist for Sumitomo Mitsui Banking Corporation (SMBC) in Singapore.
“A March rate hike is probably a done deal, and there seems to be an upgrade of the views on the economic outlook, so I can understand how market participants would think that there is a chance that the pace of rate hikes could increase to four times this year,” Suzuki said.
“But personally, I have doubts as to whether that's the Fed true intent,” Suzuki said, adding that chairman Jerome Powell's February 28 congressional testimony on monetary policy would be a key near-term focus. Both US bond yields and the dollar rose after the Fed minutes, with the US 10-year Treasury yield rising to as high as 2.957 per cent on Wednesday, the highest in four years.
With the dollar on firmer footing, the euro eased 0.1 per cent to $1.2270, inching further away from a three-year peak of $1.2556 set last week. The greenback, however, retreated against the yen, slipping 0.4 per cent to 107.35 yen.
The yen was bolstered, especially on the crosses, due to a pull-back in equities, said SMBC's Suzuki. Tokyo's Nikkei 225 index was down nearly 1.4 per cent at 0150 GMT Thursday. The Japanese currency is a traditional safe haven currency that tends to attract demand when investors' risk appetites are seen as waning. Against the yen, the euro slipped 0.5 per cent to 131.69 yen , while the Australian dollar fell 0.6 per cent to 83.61 yen.