By Kevin Buckland

TOKYO (Reuters) – The dollar hovered near a one-year high versus major peers on Thursday, following a two-day surge amid expectations for a tapering of Federal Reserve stimulus from November and a possible interest rate hike in late 2022.

In spite of the impasse at Washington regarding the U.S. government debt ceiling, which could lead to a government shutdown, the safe-haven dollar saw a rise on concerns the Fed may start to tighten.

The – which measures the currency against a basket of six rivals – stood at 94.336, little changed from Wednesday, when it hit 94.435 for the first time since late September of last year.

Dollar bought 111.86 Yuan, slightly easing after overnight reaching 112.05, an unprecedented level since February 2020.

Close to the $1.15895 low on Wednesday, the euro was not much changed at $1.1602.

“King USD is in the house: it doesn’t matter the currency, just buy USDs has been the vibe,” Chris Weston, head of research at brokerage Pepperstone in Melbourne, wrote in a client note.

“We’re effectively seeing both the left and right side of the USD ‘smile’ theory working in earnest,” with “stagflation concerns” on the rise, while the Fed has “made it clear” it will taper from November and markets pricing rates lift-off for December 2022, Weston said.

According to the “smile theory”, the U.S. dollar is able to perform well during good and bad economic times, but it does not do so in the middle.

On Wednesday, Jerome Powell, President of the European Central Bank, Christine Lagarde, and Andrew Bailey, Governor of Bank of England, spoke at a forum. They said that they are keeping an eye on inflation in light of a rise in energy prices as well as persistent production bottlenecks.

U.S. Senate Republicans blocked a request by President Joe Biden’s Democrats Tuesday to stop a potential crippling U.S. Credit default. Federal funding is due to expire Thursday, and borrowing authority will be available on Oct. 18.

Sterling edged up 0.1% to $1.34355 but remained near the nine-month low of $1.3412 reached overnight on concerns about soaring prices and almost a week of petrol shortages in Britain.

After dropping to 0.71705 on Wednesday, the risk sensitive Australian dollar gained 0.1%.

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Currency bid prices at 0127 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.1602 $1.1598 +0.03% -5.04% +1.1606 +1.1597

Dollar/Yen

111.8550 111.9700 -0.09% +8.31% +111.9650 +111.8700

Euro/Yen

129.77 129.82 -0.04% +2.25% +129.9000 +129.7700

Dollar/Swiss

0.9340 0.9346 -0.06% +5.58% +0.9347 +0.9335

Sterling/Dollar

1.3437 1.3427 +0.10% -1.62% +1.3443 +1.3426

Dollar/Canadian

1.2749 1.2753 -0.05% +0.10% +1.2763 +1.2742

Aussie/Dollar

0.7186 0.7174 +0.17% -6.58% +0.7196 +0.7176

NZ

Dollar/Dollar 0.6869 0.6866 +0.05% -4.34% +0.6878 +0.6866

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ