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Title: Dollar Gains after Fed Minutes Point to Early Rate Hikes

Jan 06, 2022 02:55AM ET

By: AnalysisWatch

The US dollar advanced in early European trade on Thursday, boosted by rising Treasury yields after minutes from the Federal Reserve's December meeting raised expectations of a rate hike soon and also raised the issue of the bank winding down its bond purchases.

At 2:55 a.m. ET (0755 GMT), the dollar index, which measures the value of the US currency against a basket of six other currencies, was 0.2 percent higher at 96.392, close to its weekly high set on Tuesday.

While this was largely due to Federal Reserve Chairman Jerome Powell's comments after the December meeting, yields on five-year US Treasury bonds, which react strongly to interest rate expectations, climbed to their highest level in almost two years. This was also due to the fact that the meeting minutes showed that some policymakers were pushing for the Fed to start selling back to the market some of the bonds it had bought over the past two years.

Moreover, Fed funds futures have priced in about an 80% probability of a quarter-point hike by the March Fed meeting.

At the same time, USD/JPY fell 0.2% to 115.93, remaining near a five-year high of 116.35, while EUR/USD fell 0.2% to 1.1290. The GBP/USD fell 0.3% to 1.3518, while the risk-sensitive AUD/USD slipped 0.8% to 0.7160.

The Federal Reserve minutes described the extremely tight labor market as a concern, and ADP data released on Wednesday showed private-sector payrolls rose by more than 800,000 in December, more than double the expected figure.

Weekly initial jobless claims will be released on Thursday, before the important non-farm payrolls report on Friday.

Elsewhere, USD/CNY rose 0.3% to 6.3749 despite China's services sector growing faster in December. The Caixin purchasing managers' index for the service sector rose to 53.1 from 52.1 in November.

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