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Title: Dollar buoyant as Fed readies to step up inflation fight

Apr 07, 2022 01:45AM ET

By: AnalysisWatch

The dollar hovered near a two-year high against a basket of major currencies on Thursday, further pushing commodity currencies off recent highs after meeting minutes showed the Federal Reserve is poised to act aggressively to prevent inflation.

The dollar index, which measures the greenback against six currencies, held at 99.546 in Asian trading, near Wednesday's high of 99.778, the highest since May 2020.

The Australian and New Zealand dollars fell about 0.4%, more than 2% low Tuesday's highs, as the U.S. Federal Reserve's tone offset a hawkish turn by the Reserve Bank of Australia.

The euro rebounded from a one-month low of $1.0874 to trade at $1.0912 in Tokyo in the afternoon. However, it remains under pressure as the European Central Bank minutes, to be released later today, are unlikely to be as decisive as the Fed minutes.

Minutes from the March Fed meeting showed that "many" participants are prepared to raise interest rates in 50 basis point increments over the coming months.

There was also a general consensus to reduce asset holdings, which ballooned during the pandemic, by $95 billion per month. This was more or less in line with market expectations, but policymakers' willingness to start as early as May was tested and will likely keep the dollar high.

The minutes of the ECB's March meeting, due to be released later today, will shed light on the delicate balancing act policymakers have in managing rising inflation and slowing growth.

Another wild card is France's increasingly close presidential election, and the risk that far-right candidate Marine Le Pen will defeat incumbent President Emmanuel Macron is weighing on the euro and French government bonds ahead of Sunday's first round of voting.

Elsewhere, the yen was near a one-week low and last traded at 123.67 per dollar. The Australian dollar fell 0.45% to $0.7475 and the Kiwi lost 0.35% to $0.6891.

The pound sterling held at $1.3076.

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