By Masayuki Kitano
SINGAPORE (Reuters) – The dollar traded near a one-week high against a basket of major currencies on Thursday, rising after minutes of the Federal Reserve’s January meeting showed policymakers were more confident of the need to keep raising interest rates.
A more upbeat take on inflation in the minutes of the Fed’s Jan. 30-31 policy meeting bolstered expectations for rate hikes. U.S. short-term interest-rate futures continued to reflect firm expectations that the Fed will raise rates three times this year.
The minutes also showed that voting members as well as the wider group of policymakers had upgraded their forecasts for the economic outlook since December.
Market participants probably interpreted the Fed minutes as leaving open the possibility that the central bank could raise interest rates four times this year, said Hirofumi Suzuki, an economist for Sumitomo Mitsui Banking Corporation (SMBC) in Singapore.
“A March rate hike is probably a done deal, and there seems to be an upgrade of the views on the economic outlook, so I can understand how market participants would think that there is a chance that the pace of rate hikes could increase to four times this year,” Suzuki said.
“But personally, I have doubts as to whether that’s the Fed true intent,” Suzuki said, adding that chairman Jerome Powell’s Feb. 28 congressional testimony on monetary policy would be a key near-term focus.
Both U.S. bond yields and the dollar rose after the Fed minutes, with the U.S. 10-year Treasury yield (US10YT=RR) rising to as high as 2.957 percent on Wednesday, the highest in four years.
With the dollar on firmer footing, the euro eased 0.1 percent to $1.2270 (EUR=), inching further away from a three-year peak of $1.2556 set last week.
The greenback, however, retreated against the yen, slipping 0.4 percent to 107.35 yen .
The yen was bolstered, especially on the crosses, due to a pull-back in equities, said SMBC’s Suzuki. Tokyo’s Nikkei 225 index (N225) was down nearly 1.4 percent at 0150 GMT Thursday.
The Japanese currency is a traditional safe haven currency that tends to attract demand when investors’ risk appetites are seen as waning.