US dollar's rise pauses ahead of Fed minutes

London

THE US dollar held below 2-week highs on Wednesday (Jan 5) as traders awaited the release of minutes from the Federal Reserve's December meeting, with growing expectations of a rate hike as early as March keeping the yen pinned near a 5-year low.

While the greenback's nearly 3 per cent rise in the past 2 months on the back of rising US Treasury yields fizzled this week, traders were wary of adding more bullish dollar bets before the release of the minutes.

"The Fed minutes will give some good colour on thinking as they pivoted, and there are many questions over the Fed right now which are arguably the most important such as how many hikes, how fast the tapering and balance sheet reduction," said John Marley, chief executive officer of forexxtra, a London-based FX consultancy.

Markets have ramped up bets on a quarter percentage point rate increase by March and fully priced one in by May.

Against a basket of its rivals, the dollar index steadied at 96.269 after hitting a 2-week high of 96.462 in the previous session.

The dollar gains have failed to ignite broader currency market volatility, with a market gauge holding near 3-month lows.

Minneapolis Federal Reserve Bank president Neel Kashkari on Tuesday said he expected the US central bank to need to raise interest rates twice this year to address persistently high inflation, reversing his long-held view that rates would need to stay at zero until at least 2024.

Non-farm payrolls on Friday will also be watched for a guide to the trajectory of borrowing costs.

The Japanese yen weakened past psychological support levels versus the greenback around 115.50 on Tuesday to hit a 5-year trough at 116.35. It was trading at 115.90 on Wednesday.

The risk-sensitive Australian and New Zealand dollars struggled as fears of Omicron derailing the world's economic recovery subside.

Sterling, meanwhile, has rallied about 2.7 per cent on the US dollar in a dozen trading days since Dec 20 as traders also reckon surging Omicron cases in Britain will not deter the Bank of England from lifting rates. REUTERS