NEW YORK: The dollar dipped modestly from three-month highs reached earlier on Wednesday as investors adjusted for the prospect of higher rates for longer after Federal Reserve Chairman Jerome Powell on Tuesday surprised markets with a more hawkish rate outlook.

Powell said that the Fed will likely need to raise interest rates more than expected in response to recent strong data and is prepared to move in larger steps if the “totality” of incoming information suggests tougher measures are needed to control inflation.

That prompted traders to reprice their rate expectations. Fed funds futures traders now see a 66% probability of a 50 basis-point hike at the Fed’s March 21-22 meeting, up from around 22% before Powell spoke on Tuesday. The rate is now expected to peak at 5.62% in September.

“I don’t think Powell told us anything we didn’t already know. I think it just shows the market sensitivity and uncertainty about where the peak Fed funds rate’s going to be,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

Powell is expected to repeat his comments in testimony before Congress on Wednesday.

Investors are now focused on February jobs data due on Friday for confirmation that continued strong jobs growth supports more rate increases. The dollar has jumped since data on Feb. 3 showed that employers added 517,000 jobs in January.