US dollar heads towards 2-year high after Fed aids greenback bulls

[LONDON] The US dollar is heading towards a 2-year high against a basket of major currencies on Thursday (Apr 7) after meeting minutes showed the Federal Reserve preparing to move aggressively to fight inflation, while commodity-linked currencies fell further.

The euro remained near a one-month low below US$1.09 as investors await European Central Bank minutes due later.

Minutes from the March Fed meeting published on Wednesday showed "many" participants were prepared to raise interest rates in 50-basis-point increments in coming months.

They also prepared markets for a reduction in the Fed's balance sheet after the May meeting at a rate of US$95 billion per month, the beginning of the reversal of the massive stimulus it pumped into the economy after the Covid-19 pandemic struck.

"That's nearly twice as quick as was seen during the last balance sheet run-down during the 2017-19 cycle," ING analysts said. "All of the above points to the Fed applying a heavy foot to the brakes, which should be positive for the dollar."

By 1045 GMT, the US dollar index traded at 99.676 after earlier reaching 99.823, its strongest since May 2020.

The Australian and New Zealand dollars fell 0.5 per cent and 0.2 per cent respectively as the Fed's tone offset a hawkish shift from Australia's central bank, and a pullback in commodity prices also reversed some of their recent strength. REUTERS