SINGAPORE Reuters - The dollar hit its highest level in a month on Thursday and pushed the euro towards major support levels after the Federal Reserve set the stage for rate hikes next year - far sooner than its developed market peers are expected to move.
The U.S. central bank left policy settings unchanged overnight and, as expected, did not announce the start of asset purchase tapering. But the Federal Reserve said a moderation in the pace of asset purchases could soon be warranted and Fed Chair Jerome Powell said board members believe tapering could conclude around mid 2022, opening the way for rate hikes after that.
The dollar rose generally after his comments, especially against the Euro and yen. The U.S. yield curve flatted and Fed markets moved to price a 50% chance of a hike in October and to fully price a 25 basis-point rate hike in December.
At a one-month low of $1.1684 in early Asia trade, the euro is near its 2021 trough of $1.1664 and not far from major support at $1.1602, a break of which could open the way to falls as far as $1.14.
Liquidity was lightened on Thursday by a holiday in Japan.
Powell didn't give any specifics about the beginning of the taper, he said there was broad agreement at the end of taper, one which 'concludes around the middle of next year, said John Briggs, strategist at NatWest Markets.
The new hike is in our view more important than when the taper starts, as it starts the clock on when the next hike may occur. The yen lost ground after Powell's news conference and ended up trading 0.5% for the session - its sharpest drop in more than three months - taking it to 109.87 per dollar, about the middle of a range it has kept since March.
The Bank of Japan, met Wednesday, made no policy changes and is not seen lifting rates anytime soon, while the European Central Bank is also lagging the Fed.
The yen, a safe-haven asset, also suffered on Wednesday because developer China Evergrande was looking for some relief in the market after its main unit said it agreed to settle a bond interest payment with some domestic creditors.
It still has to settle $83.5 million in interest on an offshore bond due on Friday.
The Australian and New Zealand Dollars gave up gains after Powell's remarks and traded slightly lower in Asia, with the Aussie leading $0.1% of the price at $7323, while the Kiwi declined below $0.70 to $0.6992. AUD The Bank of England meets on Thursday, with traders expecting it to keep rates steady but wary of any hawkish surprises.
Sterling hovers just above the big support for $1.3615 on chart support. GBP Norges Bank is widely expected to deliver the first hike among G 10 central banks on Thursday. The Norwegian crown was steadily declining in Asia at 8.669 par dollar.