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 dollar's value has gone up nearly 3% over the past two months due to rising U.S. Treasury yields this week, but traders were wary of adding more bullish dollar bets before the release of the minutes.
John Marley, CEO of the forexxtra, said that the Fed minutes will give some good colour on thinking as they pivoted. 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.
The minutes, due at 1900 GMT, could underscore U.S. policymakers' newfound sensitivity to inflation and readiness to act. Markets have jumped up 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 went up to 96.269 against a basket of its rivals after hitting a two week high of 96.462 in the previous session.
The market gauge is holding near three-month lows, but the dollar gains have failed to ignite broader currency market volatility.
In his long-held belief that rates would need to stay at zero until at least 2024, Minneapolis Federal Reserve Bank President Neel Kashkari said Tuesday that he expects the U.S. central bank to raise interest rates twice this year to address persistently high inflation.
There is a guide to the trajectory of borrowing costs after partial U.S. labor data is released on Wednesday and non-farm payrolls on Friday.
The Japanese yen fell past 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 because of the fears of Omicron harming the world's economic recovery.
Since Dec. 20 the pound has rallied 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.