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NEW YORK/LONDON: The dollar held near a one-year high on Wednesday after U.S. inflation data showed prices rose solidly in September, stoking expectations the Federal Reserve will announce a tapering of stimulus next month, with the potential for rate hikes by mid-2022.

The consumer price index rose 0.4% last month, versus a 0.3% rise expected by economists polled by Reuters. In the 12 months through September, the CPI increased 5.4%, up from a 5.3% year-on-year advance in August.

Excluding the volatile food and energy components, the so-called core CPI climbed 0.2% last month, up from 0.1% in August.

Following the CPI data, the greenback touched a fresh nearly three-year high against the yen at 113.800 yen, before easing. The pair last traded at 113.555.

A surge in energy prices has fueled inflation concerns and prompted bets that the Fed may need to move faster to normalise policy than previously projected, sending two-year Treasury yields to their highest in more than 18 months overnight.

The dollar index, which measures the greenback against six rivals, eased slightly to 94.311 from Tuesday, when it touched 94.563 for the first time since late September 2020 on the back of the higher Treasury yields.

The euro was up 0.25% at $1.1559, slightly above its lowest in nearly 15 months, $1.1522, hit in the previous session.

The Fed will release the minutes from its meeting last month later on Wednesday, potentially providing a catalyst for more strength in the dollar.

“We further believe that, following the rather mixed U.S. jobs report for September and the delay rather than the resolution of the U.S. debt ceiling issue, the Fed could ultimately opt for a more gradual start to QE taper.”

Three Fed policymakers said on Tuesday that the U.S. economy has healed enough to begin to scale back the central bank’s asset-purchase program, including Vice Chair Richard Clarida.

Most Fed policymakers continue to say inflationary pressures will prove transitory. Governors Lael Brainard and Michelle Bowman are among the Fed officials due to speak later on Wednesday.

Money markets now price about a 50-50 chance of a rate increase by July.

The risk-sensitive Aussie dollar dipped to $0.7349, retreating from Tuesday’s one-month high at $0.7384.

Bitcoin traded down 1.53% at $55,140.44, after reaching a five-month high of $57,855.79 at the start of the week.

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