The US dollar tested a two-year high against the euro and climbed to a new 20-year high against the Japanese yen on Tuesday on the back of expectations for a 50-basis point interest rate hike by the US Federal Reserve. Bond yields have risen sharply over the last 2 weeks as markets price in a significant monetary policy tightening following a sustained string of hawkish commentary from key central bank officials.
New York Fed John Williams, who is typically aligned with the Fed and FOMC chair Jerome Powell, fueled speculation a faster tightening is on the table suggesting a 50-basis point hike was “a very reasonable option”. His comments all but guarantee the Fed will accelerate the pace of rate hikes next month, highlighting the growing gap between the Fed and other major central banks. The US Dollar Index was up 0.22% sitting at 101.00 at the time of writing.