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NEW YORK/LONDON: The dollar slipped from a near two-year high on Thursday, as investors digested hawkish signals from the Federal Reserve and wondered whether expected tightening moves in the future have already been priced in.

The dollar index hit 99.823 on Thursday, the highest since late May 2020. It was last flat at 99.639.

St. Louis Fed president James Bullard, a voter this year on the Federal Open Market Committee and a known hawk, continued to sound the alarm on inflation on Thursday.

He said the Fed remains behind in its fight against inflation despite increases in mortgage rates and government bond yields that have raced ahead of actual changes in the central bank’s target federal funds rate.

Bullard’s comments, however, had little impact on the dollar.

“The Fed has laid out its plans quite clearly so markets can plan knowing what’s ahead,” said Juan Perez, director of trading, at Monex USA in Washington.

He noted that in the Fed’s past four tightening cycles, the dollar has depreciated by an average of 4.0%. The dollar currently sits at a nine-month gain of 7%.

“Perhaps history is ready to repeat itself. With global inflation also rising, other central banks will also be speculated to tighten their belts and thus improve the value of those currencies against the buck,” Perez added.

The dollar climbed to its highest in nearly two years on Wednesday after minutes from the March Fed meeting showed “many” participants were prepared to raise interest rates in 50-basis-point increments in coming months.

The Fed also prepared markets for a reduction in the Fed’s balance sheet after the May meeting at a rate of $95 billion per month, the beginning of the reversal of the massive stimulus it pumped into the economy after the COVID-19 pandemic struck.

“That’s nearly twice as quick as was seen during the last balance sheet run-down during the 2017-19 cycle,” ING analysts said.

“All of the above points to the Fed applying a heavy foot to the brakes, which should be positive for the dollar.”

The euro, on the other hand, hit a one-month trough against the dollar of $1.0865, but was slightly higher on the day, just above $1.09.

European Central Bank policymakers appeared keen to unwind stimulus at their March 10 meeting, with some pushing for even more action, as conditions for raising rates had either been met or were about to be met, minutes of the ECB meeting showed on Thursday.

An increasingly close-looking presidential election in France is another wild card, and the prospect of far-right candidate Marine Le Pen beating incumbent Emmanuel Macron has undermined the euro and French debt ahead of Sunday’s first-round vote.

The Australian and New Zealand dollars fell 0.4% and 0.5% respectively versus the greenback, as the Fed’s tone offset a hawkish shift from Australia’s central bank, while a pullback in commodity prices also reversed some of their recent strength.

Against the yen, the dollar rose 0.2% to 123.965.

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