Investing.com – The dollar was trading at one-week highs against a currency basket on Wednesday, as investors awaited the minutes of the Federal Reserve’s latest policy meeting for fresh indications on the future pace of interest rate hikes.
The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up 0.13% at 89.76 by 10:41 AM ET (15:41 GMT).
The index has climbed higher after it sank to a low of 88.15 on Friday, the weakest since December 2014.
The Fed was to release the minutes of its January meeting, where it left rates on hold, later on Wednesday and a hawkish tone could reinforce expectations for a faster pace of monetary tightening this year and boost the dollar.
Philadelphia Fed President Patrick Harker said Wednesday he still thinks just two interest rate hikes this year is “likely appropriate,” but indicated that he is open to more if needed.
Harker also said he expected the U.S. economy to grow 2.5% this year before slowing to 2% growth next year and to below 2% in 2020.
The dollar has weakened in recent months as expectations for a faster pace of monetary tightening by the Fed have been offset by a range of bearish concerns.
Worries that large corporate tax cuts and increased government spending will negatively impact the U.S. fiscal deficit, which is projected to balloon to near $1 trillion in 2019 have pressured the currency.
The tax cuts and spending plans could backfire by overheating an already strong economy and causing an unwanted pick-up in inflation.
Expectations for a faster rate of monetary tightening outside the U.S., which would lessen the divergence between the Fed and other central banks, have also eroded the dollar’s relative yield attraction for investors.
The dollar was higher against the yen, with USD/JPY rising 0.2% to 107.54, extending its bounce from Friday’s 15-month lows of 105.55
The euro was a touch lower, with EUR/USD dipping to 1.2329, down from Friday’s three year high of 1.2554.
In the euro zone, data on Wednesday showed that private sector output eased in February, but still remained robust.
Sterling was slightly lower, with GBP/USD down 0.16% at 1.3974, holding above an intra-day low of 1.3904.
The pound hit the lows of the day after the latest UK jobs report showed that the unemployment rate ticked higher, dampening expectations for a rate hike by the Bank of England in May despite a pickup in wage growth.
Sterling firmed up after BoE Governor Mark Carney said wage growth should firm this year, and that he expected a return to real wage growth in 2018.