Dollar Up, Hits One-Month High as Fed Hints at Earlier-Than-Expected Rate Hike

The dollar was up on Thursday morning in Asia hitting its highest level in a month as the U.S. Federal Reserve plans to begin asset tapering and raise interest hikes a lot sooner than its developed market peers.

The U.S. Dollar Index Futures that tracks the greenback against a basket of other currencies inched up 0.01% to 93.470 by 10:44 PM ET (2:44 AM GMT).

The USD/JPY pair inched up 0.10% to 109.89. Japanese markets are closed for a holiday.

The AUD/USD pair edged down 0.15% to 0.7234 and the NZD/USD pair was down 0.21% to 0.6995.

The USD/CNY pair edged up 0.17% to 6.4690 and the GBP/USD pair inched up 0.01% to 1.3626.

The Fed did not announce that it would begin asset tapering as it handed down its policy decision on Wednesday. However, the central bank said “a moderation in the pace of asset purchases may soon be warranted”, with Chairman Jerome Powell adding that board members believed tapering could conclude around mid-2022, opening the way for interest rate hikes after that.

“Powell didn’t give any specifics about the start of the taper, he said there was broad agreement in the end of asset tapering, one which ‘concludes around the middle of 2022,'” NatWest Markets strategist. John Briggs told Reuters.

“This is in our view more important than when the tapering starts, as it starts the clock on when the next hike may occur.”

The safe-haven yen also recorded its sharpest drop in more than three months after the Fed policy decision, falling 0.5% for the session. Meanwhile, the Bank of Japan (BOJ) kept its interest rate steady at -0.10% as it handed down its latest policy decision on Wednesday. Both BOJ and the European Central Bank are not expected to hike their interest rates anytime soon.

The yen also suffered some losses on Wednesday after developer China Evergrande Group’s (HK:3333) main unit agreed to settle a bond interest payment with some domestic creditors. However, some $83.5 million in interest on an offshore bond remains due on Thursday.

Meanwhile, the Bank of England and Norges Bank are among the central banks handing down their policy decisions later in the day, with the latter widely expected to deliver the first hike among G10 central banks.