By Saikat Chatterjee

LONDON (Reuters – On Wednesday, the U.S. dollar climbed to a new 14-month high as minutes from the Federal Reserve policy meetings fuelled hopes of a U.S. rate hike as early as March.

According to the minutes of December’s Fed meeting, officials talked about shrinking U.S. central banking’s asset holdings and increasing interest rates faster than they expected in order to reduce inflation.

The money markets now price a nearly 80% chance of an increase in U.S. interest rates by March, and over 80 basis points cumulative rate increases for 2022. This is a remarkable shift considering investors didn’t expect the U.S. to raise its rate until 2023 three months ago.

Although it was just marginally lower than Wednesday’s levels on the surface the greenback made significant gains in comparison to some of its competitors such as the Australian dollar and Canadian dollars.

In general, the dollar index was 0.2% higher at 96.393. It is still within striking distance of the November high of 95.938, which was its highest point since July 2020.

“Overall, the minutes show a hawkish tone that supports our view for continued US dollar strength in the beginning of next year,” MUFG strategists stated.

After reaching $0.7273 on Wednesday, it dropped by more than 1 percent to $0.7146.

Sterling was 0.3% lower at $1.3507 following overnight movements from the $1.3599 mark – which is its highest since nearly two months.

As it remained stable at $1.13, the euro remained broadly the same as before mid-November. It continued to hold the middle of its trading range since then.

In a report, George Davis, RBC’s strategist, said that “trend and momentum dynamics continue favoring the USD” but that prices would have to surpass the Q4 2021 lows in order for the trend to resume in most cases.

The overnight market collapse left cryptocurrencies among the worst-hit, with losses of less than $43,000 after they fell more than 5% over the night.