LONDON, Nov 17 Reuters - The US dollar held comfortably at 4 -- 1 2 year highs against the yen and tested the $1.12 levels against the euro on Wednesday after robust U.S. data and hawkish comments from Fed policymakers boosted expectations of a rate hike as early as mid- 2022.
The strong retail sales number yesterday did exactly what it was meant to do and broke the U.S. dollar into upside ground against a number of currencies in the belief that the curve of interest rate expectations is set to move in favor of higher rates sooner, said Jeremy Thomson-Cook, chief economist at international business payments specialist Equals Money.
The US retail sales increased more than expected in October, a report showed on Tuesday, building on momentum from last week when consumer prices rose at the highest rate since 1990.
The dollar index - which measures the currency against six rivals -- was 0.1% higher at 96.053 after earlier touching 95.884 for the first time since July last year.
The greenback rose as far as 114.975 yen, its highest since March 2017 before retreating to 114.77 yen. The euro fell for the first time since July 2020 to $1.1263 and was last 0.2% lower at $1.1319.
Since May 2020, the euro slipped to its lowest level against the Swiss franc.
The dollar's rise has also pushed the FX market volatility higher, with one gauge rising to a 8 month high of nearly 7%.
Money markets are now pricing in a high probability of a Fed rate increase in June, followed by another in November. CME data shows a 50% probability of a 25 bps rate hike by July 2022.
Antje Praefcke, an FX strategist at Commerzbank, said the market believes that the key rate will be hiked in the second half of next year. The dollar continues to be a buy on dips in the short-term. The pound climbed to a one week high against the dollar and a 21 month high against the euro after British inflation reached a 10 year high in October, boosting expectations for a rate hike as early as next month.
After dipping below that level for the first time this month, cryptocurrencies traded just south of $60,000. It reached a record $69,000 last Wednesday.