Peter Nurse

Investing.com: The U.S. Dollar edged lower Thursday in European early trade, but remained near a two year high. Minutes from the Federal Reserve meeting indicated that policymakers are ready to take aggressive steps to combat inflation.

The, which monitors the greenback in relation to a basket six other currencies, closed 0.1% below its previous high of 99.78 on Wednesday, and was at the lowest level since May 2020. 

Wednesday saw the release of the from last month’s Federal Reserve policy meeting when the central bank raised interest rates for the first time since 2018.

They showed the policymakers have laid out a plan to shrink their balance sheet by more than $1 trillion a year, and also indicated that “many” viewed one or more half-point increases as possibly appropriate going forward if price pressures fail to moderate.

While this content was broadly within expectations, the Fed’s determination to move quickly and aggressively to combat inflation gave the dollar a boost.

“Our short-term fair value model shows that, for some G10 pairs (like EUR/USD), the greenback remains undervalued,” said analysts at ING, in a note. “This suggests the dollar still has some room to catch up with the big moves in rates (a major determinant of its short-term fair value), and we think a consolidation around these higher levels is more likely than a correction at this stage.”

After hitting an all-time low of 1.0874, the currency rebounded 0.2% and rose to 1.0918. This was after it had fallen by 1.0874 for a month.

The single currency is also being affected by the increasing chances that the anti-EU far-right will win the French presidential election this month. This first round vote took place Sunday.

“Le Pen’s stance on a number of EU-related issues (like an exit from the EU) has softened since the 2017 election campaign, but her impact on the stability of the EU is still perceived to be quite significant,” ING added.

The from the European Central Bank’s last meeting are due later in the day and are unlikely to be anything as hawkish as the Fed’s with the bloc’s central bank having to cope with slumping growth in the wake of the Ukraine war even as Eurozone inflation soared to a record high of 7.5%.

Fabio Panetta, an ECB member and speaker said Wednesday that quarter-on-quarter growth rates would be low in this year’s economy. “The war may have a negative impact on them and cause longer-lasting problems.”

Other markets fell 0.1% at 123.70. This was close to the one-week peak. The stock market rose 0.2% at 1.3086 and fell 0.3% to 0.7491. It was mostly unchanged at 6.3612.