Peter Nurse

Investing.com reports that the U.S. dollar rose in European early trade on Thursday. This was due to rising Treasury yields, which were boosted after the December Federal Reserve meeting. The increase in Treasury yields has raised expectations about an early interest-rate hike. It also brought into play the question of whether the bank would reverse its bond purchase.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% higher at 96.392, remaining close to Tuesday’s one-week high.

“The minutes revealed that committee members felt inflation risks were more persistent and to the upside, and there was general agreement that the taper should be accelerated with three tentative rate hikes penciled in,” said Jeffrey Halley, an analyst at OANDA, in a note.

This was the majority of what Chairman Jerome Powell said after December’s meeting. However, U.S. Treasury yields on five year bonds, which are highly sensitive to expectations about interest rates, rose to nearly their highest level in almost two years. This was due in part to minutes that showed some Fed policymakers urging the Fed to sell some bonds it had bought during the past two years.

Additionally, Fed Funds futures have priced in a roughly 80% chance of a quarter-percentage-point Fed hike by its March meeting.

The stock market fell 0.2% at 115.93 while falling 0.2% at 1.1290.

Fed minutes identified a tight labor market as an issue and published Wednesday’s data showed that private payrolls rose by more than 800,000 in December. This is nearly twice what was expected.

Weekly data are due later Thursday, ahead of Friday’s key report.

“We suspect March is too early for a rate hike given the lack of visibility caused by Omicron, but May is clearly on the cards,” said analysts at ING, in a note.

Elsewhere, rose 0.3% to 6.3749, despite China’s services sector growing more quickly in December, with the rising to 53.1 from 52.1 in November. 

Turkey will release the latest foreign currency reserve data later in session. The country saw 0.8% increase to 13.7879. The country’s central bank recently unveiled a plan to compensate lira holders for any currency losses, in order to stop sharp selling of its currency as it cut interest rates. It has been heavily intervening in foreign currency markets, too.

“By my reckoning, the lira has already given back around 35% of its engineered gains in the past week or so, if reserves show a big drop this evening, the Turkish lira vigilantes will be back out in force,” added Halley.