The dollar index strengthened against the euro and the yen amid a hawkish Federal Reserve, while currencies might also move as the European Central Bank releases minutes of October meetings.

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The US dollar has eased a little against the euro and yen but remains near the highest levels seen in over a year and five years respectively. The dollar index is also slightly lower in early European hours at 96.73 although it’s within the range of a 17-month high of 96.938 reached on Wednesday.

Dollar reigns 

The dollar has been strong over the past few weeks, regaining the upper hand against its peers as inflation concerns slackened risk-on appetite.

On Wednesday, the currency hit highs last seen in 2017 against the yen and firmed to a mark last seen in 2020 against the euro.

The dollar is largely unchanged against the yen at 115.360 and remains close to the peak of 115.525 reached on Wednesday and which highlights the yen’s weakest point against the greenback since January 2017.

The euro is slightly up against the US dollar, currently poised around $1.122. However, the eurozone currency needs to add to the upside to avoid a retest of overnight lows of $1.118, which is the lowest the currency has reached in the past 17 months.

The sterling meanwhile saw an uptick in early exchanges on Thursday after also dipping against the US dollar on Wednesday. The GBP was up 0.17% at 0830 GMT to $1.355, away from an 11-month low of $1.332 the previous day.

Fed affirms hawkish approach, European Central Bank minutes out today

The dollar benefitted from a market reaction to Fed minutes out in the afternoon session on Wednesday. The minutes are from the 2-3 November meetings and have shown that policymakers support an acceleration of the tapering program. 

However, although the central bank is more hawkish, policymakers said they were ready to raise interest rates sooner if subsequent data shows higher inflation.

The Fed’s hawkish approach is in contrast to counterparts in Europe; the European Central Bank (ECB) is to release minutes of its 28 October meeting today. Also interesting to watch out for today is an expected speech from ECB president Christine Lagarde, who last month talked of transitory inflation.

Meanwhile, investors will also be awaiting the next move from the Bank of England. The UK central bank failed to raise interests this month, catching many investors unawares after they expected the opposite. The BOE’s next opportunity to raise or maintain interest rates is on 16 December.