Kevin Buckland

TOKYO (Reuters – The dollar hovered at a high of nearly two decades against major peers Wednesday ahead of a crucial reading on inflation, which should give clues as to how aggressive the Federal Reserve is in tightening monetary policies.

The currency against six competitors was flat at 103.92. It is not far away from the peak of 104.49 at the beginning of the week, the highest since December 2002.

The euro remained stuck at 1.05305 and traded mostly sideways after plunging to a five-year low of 1.04695 at last month.

After dipping to an almost two-decade high of 131.35 Monday, the yen traded little change at 130.40 per $1.

Investors will pay close attention to the U.S. consumer prices index reading from April later this week for any indications that inflation might be cooling. The expectations are for an 8.1% increase annually, as opposed to the 8.5% recorded in March.

Investors have tried to gauge how aggressive the central banks will go after the Fed increased its overnight benchmark interest rate by 50 basis point last week. This was the biggest increase in 22 years.

According to CME’s FedWatch Tool, markets are expected to see a further increase of 50 basis points in June’s central bank meeting.

Inflation has been much hotter than expected, and the greenback rose nearly 9 percent this year in spite of an increasingly hawkish Fed.

Commonwealth Bank of Australia, (OTC) believes that there is a risk of further profits from this.

Joseph Capurso (CBA currency strategist) wrote in a note to clients that “the USD’s response to the CPI would be asymmetrical”.

A positive surprise can encourage the markets to price for a 75 basis point increase in the Funds Rate later in the year, and will support the USD. On the other hand, a negative surprise could keep the USD stable and pricing unchanged for the 50bp increase in June and July.

He said that the euro is “remaining heavily” above $1.05. A strong CPI print could drive the Australian dollar to $0.69.

On Wednesday, the price rose 0.17% to $0.6951. However, it did not rise much from Monday’s 22-month low of $0.6911 on Monday.

Sterling was also struggling to hold at $1.2262, a low of 22 months at the beginning of the week. Last trading at $1.2323, sterling traded flat.

It licked its wounds, falling below $30,000 this week, for the first-time since July, and changing hands at $30.758.92.