The U.S. dollar held comfortably at 4-1/2 year highs versus the yen and tested the $1.12 levels against the euro on Wednesday after robust U.S. data and hawkish comments from Fed policymakers boosted expectations of a rate hike as early as mid-2022.
"The strong retail sales number yesterday did exactly what it was meant to do -- and broke the U.S. dollar into fresh upside ground against a number of currencies in the continued belief that the curve of interest rate expectations is set to move in favor of higher rates sooner," said Jeremy Thomson-Cook, chief economist at international business payments specialist Equals Money.
U.S. retail sales rose more than expected in October, a report showed on Tuesday, building on momentum from last week when data showed consumer prices are rising at the highest rate since 1990.
The dollar index - which measures the currency against six rivals - was 0.1% higher at 96.053 after earlier touching 95.884 for the first time since July last year.
The greenback rose as far as 114.975 yen, its highest since March 2017 before retreating to 114.77 yen. The euro fell abruptly to $1.1263 for the first time since July 2020 and was last 0.2% lower at $1.1319.
Against the Swiss franc, the euro briefly slipped to its lowest levels since May 2020.
The dollar's rise has also pushed broader FX market volatility higher, with one gauge rising to a 8-month high of nearly 7%.
Money Markets Price In Two Rate Hikes in 2022
Money markets are now pricing in a high probability of a Fed rate increase in June, followed by another in November. CME data suggest a 50% probability of a 25 bps rate hike by July 2022.
"The market assumes that the key rate will be hiked in the second half of next year," said Antje Praefcke, an FX strategist at Commerzbank. "For me too, the dollar remains a 'buy on dips' short-term."
Elsewhere, the pound climbed to a one-week high versus the dollar and a 21-month high against the euro after British inflation reached a 10-year high in October, boosting expectations of a rate hike as early as next month.
In cryptocurrencies, bitcoin traded just south of $60,000, after dipping below that level on Tuesday for the first time this month. It reached a record $69,000 last Wednesday.
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