The dollar index rose to another 16-month high on Wednesday after economic data nL1N2SF1L1nL1N2SF1L1 and comments from the Fed strengthened the market perception that the U.S. central bank could consider accelerating its tapering of asset purchases nL1N2SD0ZZnS0N2O302O.
San Francisco Fed President Mary Daly said she would be open to accelerating the pace of the central bank's tapering of asset purchases nL1N2SF1K8.
Minutes from the latest Fed meeting emphasized flexibility, including adjustments to the pace of asset purchases and raising rates earlier than currently foreseen nN9N2O6023, echoing the message from Daly and other policymakers in recent days.
Treasury yields climbed, particularly from the front to the middle of the curve, as markets priced in rate hikes beginning in Q2, driving EUR/USD further below 1.1200 options support and toward the June 22, 2020 swing low at 1.1168.
With U.S. jobless claims at 52-year lows, inflation at its highest since 1990 and demand far outstripping supply, the Fed, and the Biden administration, are feeling compelled to tackle inflation.
Michigan consumer sentiment remained sour nAQN06O1MC due to inflation concerns that had 1-year and 5-year inflation expectations at 4.9% and 3.0%, respectively.
With Europe once again the epicenter of the pandemic, forcing Italy to announce several new restrictions nR1N2QB00J, the divergence between the tapering Fed and the ECB still worried about the strength of the euro zone recovery suggests EUR/USD is likely to retrace more of its COVID-era rise.
EUR/USD fell 0.5%, showing no signs of stabilizing yet.
Prices are already down to pre-pandemic lows, with Wednesday's decline aided by another slip in the Ifo index amid record high COVID infection rates in Germany.
Below the one-off support from last June's 1.1168 swing low, the next potential support is the 76.4% Fibo of the 2020-21 range at 1.1040 nL1N2SF1XW.
Treasury yields, particularly out the curve, fell back from morning highs, in part because a more active Fed normalization process should limit the growth of inflation and, thus, the scale of tightening.
USD/JPY was up 0.3%, extending its rally beyond multi-year highs and the 115 pivot point, as Treasury-JGB yield spreads climbed further into February 2020 pre-pandemic highs.
Wednesday's highs are by the March 2017 swing high at 115.51, but the broader objectives are by December 2016's 118.66 peak nL1N2SF1IA.
GBP/USD fell 0.39% to a new 2021 low, another victim of dollar strength.
The UK economy is also seen at some risk from the current wave of the pandemic in Europe nL1N2SF1TX.
Traders are also a little more cautious about aggressive BOE rate hike pricing after being disappointed by the last meeting's rate hold.
AUD/USD fell 0.5%, getting closer to September's 0.71705 swing low, also succumbing to U.S. dollar gains that weighs on commodity prices and higher Treasury yields that hinder global risk-taking.
Most commodity and high-beta currencies were weaker, though the imploded Turkish lira recovered a portion of Tuesday's incredible 12.6% free fall nL1N2SF1F3.
Bitcoin and ether posted mild losses.
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