Geoffrey Smith 

Investing.com — The dollar hit its highest level this year in early dealings in Europe on Thursday, after the Federal Reserve’s press conference led many to expect more monetary policy tightening than previously expected.

Jerome Powell, Fed Chair, dodged questions about whether or not the Fed will raise interest rates in subsequent meetings. However it is possible that there could be more than three increases by 2022. The Fed Chair Jerome Powell confirmed the fact that the March hike would take place as was widely expected.

“The committee is of a mind to raise the federal funds rate at the March meeting assuming that conditions are appropriate for doing so,” Powell said, adding that “the economy no longer needs substantial levels of monetary policy support”. The short-term interest rates futures currently indicate a 20% chance that the first increase will be 50 basis point, instead of 25 basis points. Meanwhile, interest-rate-sensitive two-year bond yields have soared to an all-time high of 1.20% in two years.

The, which measures the greenback’s performance against six currencies from the developed markets, had risen 0.5% to 96.83 at 3:00 AM ET (0800 GMT). It was most active against currencies with higher yielding rates such as the Australian or New Zealand dollars.  Canadian dollars also fell 0.5% to C$1.2725 following Wednesday’s unchanged key rate by the Bank of Canada. However, it indicated that its first increase would be soon.

Although the euro dropped below $1.12 in November for the first-time since November, it retraced some losses to trade at $1.1199. Meanwhile, the pound fell 0.4% and traded at $1.3413.

That’s the lowest level for sterling this year, but the pound has enjoyed more support from expectations that the Bank of England will raise its key rate for the second time at its meeting next week.

Analysts at ING said they expected the dollar to remain bid going into the Fed’s next meeting in March.

“This is probably the key debate for FX markets over coming months – whether to just seek dollar strengthening over the low-yielders or buy dollars against everything, ING’s Chris Turner and Francesco Pesole wrote in a note to clients. “While acknowledging that we are going through a rocky period for risk assets, we think it is too early to conclude that Fed tightening or high energy prices severely choke global growth this year and would prefer the former scenario of dollar strength largely being played out against the low-yielders.”

Later Thursday, the South African central bank is expected to raise its key rate by 25 basis points to 4.0%, while Chile’s raised on Wednesday by 150 basis points to 5.5%.

The dollar’s strength will be tested at 8:30 AM ET by the release of fourth-quarter gross domestic product data for the U.S., while weekly jobless claims – which have risen in the last two weeks due to the wave of Omicron-variant Covid-19 – are due at the same time.