NEW YORK, November 17, Reuters - The U.S. dollar slowed off of a fresh 16 month high on Wednesday, while the euro remained on its back foot as investors weighed central bank tighter odds amid rising pricing pressures, with the U.S. Federal Reserve seeing hikes as early as mid- 2022.
The dollar index, which measures the currency against a basket of six rivals, fell by 0.034% to 95.91 after touching 96.266 for the first time since mid-July 2020.
The dollar hit a 4 -- 1 2 year high against the euro and tested the $1.12 levels against the euro, helped by robust U.S retail sales data and hawkish comments from Fed policymakers.
The market is starting to understand that there are going to be different themes in FX, said Edward Moya, senior market analyst at FX broker Oanda. He said that you're in for a choppy period.
Money markets are now pricing in a high probability of a Fed rate increase in June, followed by another in November. The CME data shows a 50% probability of a 25 bps rate hike by July 2022.
Antje Praefcke, a FX strategist at Commerzbank, said the market believes that the key rate will be hiked in the second half of next year. The dollar is a buy on dips' short-term, for me too. The U.S retail sales increased more than expected in October, adding to the momentum of the dollar's momentum last week when a report showed consumer prices in the US rose at the highest level since 1990.
Inflation in Britain hit a 10 year high in October and an 18 year high in Canada, according to data released on Wednesday.
The pound climbed to a one week high against the dollar and a 21 month high against the euro after British data boosted expectations of a rate hike by the Bank of England as early as next month.
The Canadian dollar was slowed along with oil prices, which were dampened in part due to the strong U.S. dollar.
The greenback rose to 114.975 yen, its highest since March 2017 before it fell to 114.55 yen.
The euro was down 0.12% at $1.13065 at the end of the day.
The dollar's rise has pushed the FX market volatility higher, with one gauge rising to a 8 month high of nearly 7%.
After dipping below that level on Tuesday for the first time this month, cryptocurrencies traded just south of $60,000.