LONDON: The dollar slipped overnight but was still close to its highest since July 2020 against the euro on Thursday after U.S. Federal Reserve meeting minutes reinforced market expectations that the Fed will raise rates sooner than other major central banks.
The dollar has strengthened so far this month as currency markets have been driven by investors favouring currencies of countries with more hawkish central banks.
Minutes from the Nov. 2-3 meeting indicated the Fed had become more concerned about rising inflation as various policymakers said they would be open to speeding up the taper of their bond-buying programme if high inflation held and move more quickly to raise interest rates.
Data on Wednesday showed U.S. jobless claims were at a 52-year low, consumer spending increased more than expected in October and inflation rising.
The dollar index reached a 16-month peak late on Wednesday but eased overnight and was down 0.2% on the day at 96.664 at 0838 GMT on Thursday. It has gained around 2.7% so far this month.
Versus the Japanese yen, the dollar was close to a five year peak.
"The USD is dominating trading across G10 FX," wrote ANZ strategists John Bromhead and Daniel Been in a note to clients.
"With the Thanksgiving holiday now upon us, we think a period of tactical consolidation might be close."
The euro was up 0.2% versus the dollar at $1.12215 , a slight recovery. But the euro has still lost around 2.9% so far this month, weighed down by expectations that the European Central Bank being more dovish than the Fed, as well as, more recently, a new wave of COVID-19 restrictions in Europe.
"Given that this particular trade-weighted measure of the dollar is heavily skewed to European currencies, the combination of a bullish Fed and fourth waves in Europe is making the DXY (dollar index) look very bid," wrote ING currency strategists in a note to clients.
A surge in coronavirus infections in Germany and unusually high inflation rates are weighing on the consumer morale in Europe's largest economy, a survey showed on Thursday.
Sweden's central bank left monetary policy unchanged, arguing that inflation would ease next year. It pencilled in its first post-pandemic rate hike for the end of 2024.
The Swedish crown strengthened slightly, and was up around 0.5% at 9.0655 versus the dollar and up around 0.4% at 10.1780 versus the euro. But it was still set for its worst month versus the euro since March 2020.
The Australian dollar - seen as a liquid proxy for risk appetite - was steady at $0.7187.
The New Zealand dollar was down 0.1% at $0.6866, languishing near the three-month low of $0.6856 hit the previous day, when the country's Reserve Bank raised the key rate by a quarter of a percentage point, disappointing bulls hoping for a half point increase.
In cryptocurrencies, bitcoin was up around 0.9% at $57,721.48, having recovered slightly from the month-low of $55,128.60 it reached on Tuesday.