LONDON, January 5, Reuters -- The dollar held below two-week highs on Wednesday as traders waited for the release of minutes from the Federal Reserve's December meeting, with growing expectations of a rate hike as early as March to keep the yen near a five-year low.
The minutes, due at 1900 GMT, could underscore U.S. policymakers' newfound sensitivity to inflation and readiness to act. Markets have increased their bets on a quarter point rate increase by March and fully priced one in by May.
If tapering had ended a few months ago, we think the FOMC would raise policy rates now with the unemployment rate not far above the Fed's long-term target and core and headline inflation well above, according to Standard Chartered analysts.
The dollar index was steady at 96.269 against a basket of its rivals after hitting a two week high of 96.462 in the previous session.
Minneapolis Federal Reserve Bank President Neel Kashkari said on Tuesday that he expected the U.S. central bank to raise interest rates twice this year to address persistently high inflation, reversing his long-held belief that rates would need to stay at zero until at least 2024.
A guide to borrowing costs will be provided by partial U.S. labor data on Wednesday and non-farm payrolls on Friday.
The Japanese yen weakened past its psychological support levels against the dollar around 115.50 on Tuesday to hit a five-year trough at 116.35. It was trading at 115.90 on Wednesday.
Australian and New Zealand dollars struggled as a result of fears of Omicron harming the world's economic recovery.
Since Dec. 20 the pound has rallied a bit more than 2.7% on the dollar in a dozen trading days, as traders reckon surging Omicron cases in Britain won't deter the Bank of England from lifting rates.