(Adds quotes, details on rate expectations; updates prices; changes byline, dateline)
The U.S. dollar hit a two-month high on Tuesday in line with higher Treasury yields after hawkish comments from Federal Reserve officials led investors to position for the possibility of further rate hikes.
Regional Fed Presidents James Bullard and Neel Kashkari on Monday indicated that the U.S. central bank may need to continue hiking rates if inflation remains high.
“The focus is slowly going back towards inflation and all this hawkish Fed speak we’ve been getting and that’s been giving the dollar some support here,” said Edward Moya, senior market analyst at OANDA in New York.
The comments come after statements by Fed Chair Jerome Powell on Friday were viewed as being dovish. “We’ve been getting a steady dose of hawkish Fed push back, but not really from Fed Chair Powell,” Moya said, adding that minutes from the Fed’s May meeting due on Wednesday will be watched for any further signs of his thinking.
Powell said on Friday that it is still unclear if rates will need to rise further, as central bank officials balance uncertainty about the impact of past hikes in borrowing costs and recent bank credit tightening with the fact that inflation is proving hard to control.
Traders have ramped up bets that the Fed funds rate will stay elevated, with markets pricing in almost a 30% chance of a rate hike in June and the Fed funds rate seen at about 4.75% in December. FEDWATCH
The dollar index =USD , which measures the U.S. currency against a basket of major peers, reached 103.65, the highest since March 20, and was last at 103.33.
The greenback also rose to 138.91 against the Japanese yen JPY=EBS , the highest since Nov. 30, before falling back to 138.35.
The euro EUR=EBS slipped 0.18% to $1.0794. It is holding just above a two-month low of $1.0760 hit on Friday.
Euro zone data on Tuesday showed that business growth slowed slightly more than thought this month. Investors are also focused on when Congress will raise the U.s. debt ceiling. White House and congressional Republican negotiators will meet again on Tuesday to resolve a months-long impasse over raising the government's $31.4 trillion debt limit.
"Markets are still expecting some sort of deal to be reached," said Niels Christensen, chief analyst at Nordea. "An agreement should spark some more risk-on sentiment which could be negative for the dollar."
======================================================== Currency bid prices at 10:21AM (1421 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index =USD 103.3300 103.2600 +0.08% -0.155% +103.6500 +103.1600 Euro/Dollar EUR=EBS $1.0794 $1.0814 -0.18% +0.74% +$1.0820 +$1.0763 Dollar/Yen JPY=EBS 138.3500 138.5900 -0.17% +5.52% +138.9000 +138.2500 Euro/Yen EURJPY= 149.33 149.85 -0.35% +6.44% +150.0500 +149.1100 Dollar/Swiss CHF=EBS 0.8988 0.8980 +0.09% -2.80% +0.9029 +0.8976 Sterling/Dollar GBP=D3 $1.2430 $1.2437 -0.02% +2.82% +$1.2446 +$1.2373 Dollar/Canadian CAD=D3 1.3503 1.3506 -0.02% -0.34% +1.3548 +1.3488 Aussie/Dollar AUD=D3 $0.6627 $0.6653 -0.35% -2.75% +$0.6662 +$0.6611 Euro/Swiss EURCHF= 0.9700 0.9707 -0.07% -1.97% +0.9721 +0.9702 Euro/Sterling EURGBP= 0.8681 0.8695 -0.16% -1.84% +0.8718 +0.8681 NZ NZD=D3 $0.6261 $0.6286 -0.37% -1.38% +$0.6302 +$0.6235 Dollar/DollarDollar/Norway NOK=D3 10.9110 10.9000 +0.19% +11.28% +10.9940 +10.9140 Euro/Norway EURNOK= 11.7795 11.7872 -0.07% +12.25% +11.8588 +11.7704 Dollar/Sweden SEK= 10.5942 10.5557 +0.18% +1.79% +10.6341 +10.5349 Euro/Sweden EURSEK= 11.4364 11.4164 +0.18% +2.57% +11.4611 +11.4080
