TOKYO, November 25, Reuters - The US dollar traded near its highest in over a year to the euro and close to a five-year peak against the dollar as a hawkish tilt by Federal Reserve policymakers, buoyed by solid U.S. data, contrasted with more dovish monetary outlooks in Europe and Japan.
The dollar index, which measures the dollar against six major peers, fell by 0.1% to 96.733, but remained within touching distance of Wednesday's high of 96.938, the strongest level since July 2020.
The index has gone up 2.77% this month as traders bet that heated inflation would force earlier interest rate hikes than the Fed officials had signalled. The market is fully priced for a first quarter point hike by June, with strong odds that it could be delivered as soon as May.
Chris Weston, head of research at Pepperstone in Melbourne, wrote in a client note that the USD is in beast mode and just doesn't want to go down.
The ship can tip when things get too over-loved, he warned.
The minutes of the central bank's Nov. 2 -- 3 policy meeting showed on Wednesday that various policymakers said they would be open to speeding up the taper of their bond-buying programme if high inflation held, and move more quickly to raise interest rates.
Inflation continued to heat up overnight, as readings on the labour market and consumer spending outstripped economists' estimates.
In an interview with Yahoo Finance, San Francisco Fed President Mary Daly said that he could see a case being made to speed up the Fed's tapering of bond purchases.
Tapas Strickland, a director of economics at National Australia BankAustralia Bank, wrote in a research note that the U.S. economy retained its titanium status, while slightly hawkish comments from the normally dovish Daly also helped lift the dollar.
The dollar was relatively unchanged at 115.355 yen, holding close to the overnight high of 115.525, a level not seen since January 2017.
The euro rose 0.13% to $1.1215 but stayed within sight of the near 17 month low hit on Wednesday at $1.1186 after German business confidence slumped for a fifth straight month.
Minutes from the European Central Bank's Oct. 28 meeting are due to be released on Thursday, though the U.S. calendar is mostly empty due to the Thanksgiving holiday.
After the European Central Bank left policy unchanged at the meeting, ECB President Christine Lagarde said officials had discussed inflation, inflation, inflation and inflation, but after a lot of soul-searching had stuck to the view that inflationary forces will prove to be transitory.
Lagarde will give a speech at the ECB legal conference later on Thursday, during which board members Frank Elderson and Edouard Fernandez-Bollo will also participate.
The pound went up 0.14% to $1.33465 after dipping as low as $1.3317 on Wednesday for the first time in 11 months.
The investors are focused on whether or not the Bank of England will raise rates on December 16.
After comments from its governor Andrew Bailey in October, the BOE wrong-footed many investors when it kept policy steady at record lows at the beginning of the month.
Bailey is speaking at Cambridge University later on Thursday.
The risk-sensitive Australian dollar went up 0.06% to $0.7201, not far from Wednesday's $0.7185, its lowest level since September.
The country's Reserve Bank raised the key rate by a quarter of a percentage point to 0.75%, a result that the New Zealand dollar was little changed at $0.6870, which is near the three month low of $0.6856 hit the previous day, and disappointed bulls who were hoping for a half point increase.