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Dollar hits one-month high as traders eye Fed rates liftoff By Reuters

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© Reuters. FILEPHOTO: A banker counts currency in Westminster, Colorado. November 3, 2009, four thousand U.S. dollar. REUTERS/Rick Wilking/File Photo

By Tom Westbrook

SINGAPORE (Reuters) – The dollar hit its highest in a month on Thursday and pressed 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.

As expected, the U.S. central banks did not make an announcement about asset purchase tapering, but they left their policy settings unchanged over night. However, the Federal Reserve indicated “a moderation in the pace asset purchases may be soon warranted”, and Fed Chair Jerome Powell stated that Fed members thought tapering would end by mid-2022. This could open up the possibility of rate rises.

After Powell’s comments, the dollar rose widely against the yen as well as the euro. After his comments, the U.S. yield curve flattened. Fed funds futures market prices moved to estimate a 50% probability of an October hike and to completely price in December a 25-basis point rate increase.

In early Asia trade the euro fell to $1.1684, a near-month high. The support level at $1.1602 is still strong and could allow for further falls to as low as $1.14.

On Thursday, a Japanese holiday helped reduce liquidity.

John Briggs of NatWest Markets strategist, stated that while Powell didn’t provide any details about when the taper would begin, he did say there was widespread agreement on the conclusion of taper. He said it would end around mid-2019.

This is, in our opinion, more important than when taper ends. It starts the clock for the next hike.

Also, after Powell’s announcement, the yen fell 0.5% to reach 109.87 per USD. It is now in the middle of the range that it had maintained since March.

The hit a one-month high of 93.526.

On Wednesday, the Bank of Japan met and did not make any policy changes. The Bank of Japan is unlikely to raise rates soon, while the European Central Bank continues to trail the Fed.

According to the Fed, new projections show hikes beginning in 2022.

After China Evergrande, developer of the Japanese yen, announced it had settled a bond interest payment to some domestic creditors, Wednesday’s yen suffered some.

The company still needs to pay $83.5 million of interest due Thursday on an offshore bond.

The Australian and New Zealand dollars gave up gains after Powell’s remarks and traded slightly lower in Asia, with the last down 0.1% at $0.7323, while the dipped below $0.70 to $0.6992. [AUD/]

On Thursday, the Bank of England will meet. Traders expect it to maintain rates at the same level but be wary of any unexpected hawkish moves.

The Sterling sits at $1.3615 which is just below the chart support. [GBP/]

On Thursday, the Norges Bank is expected to announce its first increase among G10 central banks. At 8.669 dollars, the Norwegian Crown was stable in Asia.

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