Dollar near multi-week highs

The US Dollar Index rose to a two-week high of 99.66

The dollar was holding on to recent gains on ​Wednesday and trading near multi-week highs on a handful of peers ahead of a central bank decision where traders expect ‌the first of what could be several U.S. interest rate hikes.

A 25 basis-point increase is about 90% priced, implying the dollar will receive a modest boost if the Fed increases, said Carol Kong, currency strategist at the Commonwealth Bank of Australia in Sydney.

There is a small chance the dollar eases if the Fed hikes but chair Kevin Warsh plays ​down the risk of follow-up hikes in the press conference. In the event the Fed does not increase the funds rate, we ​expect a steep 1%+ fall in the dollar, she said.

The dollar had advanced along with yields overnight, running furthest against the ⁠yen and New Zealand dollar, leaving the kiwi to hit a two-month low of $0.5749 in Asia morning trade and the yen at a one-week ​low of 155.43 per dollar.

The US Dollar Index rose to a two-week high of 99.66.

At $1.1535 the euro was not far from Monday’s one-month low of $1.1523, while sterling, at $1.3470, was not far above a six-week low of $1.3464 it had made on Monday.

The Aussie dollar steadied at $0.7126.

Currency markets haven’t really moved that much while world bond yields have been jumping in concert over recent weeks because sovereign bonds have moved in tandem and not shifted relative differences between countries’ yields very far.

But the dollar gained traction in the last few sessions on thinking that ​despite Warsh being hired by president to cut interest rates, he’ll need to hike a few times to show the central bank is ​serious about taming inflation that is being fanned by war with Iran and the resulting energy price surge.

Especially given that the Fed has lost a bit of ‌credibility with ⁠the markets, we are a bit sceptical that one or even two hikes are going to be enough to restore that credibility, said Calvin Tse, head of U.S. strategy and economics at BNP Paribas.