The dollar fell from its one-year high on Wednesday as longer-dated Treasury yields dipped after U.S. inflation data showed prices rose solidly last month, while the minutes from the Federal Reserve's September meeting confirm tapering will begin "soon."
The dollar index , which measures the greenback against six rivals, was last down 0.515% at 94.036 from Tuesday, when it touched 94.563, its highest since late September 2020.
The euro was up 0.56% at $1.15945, rebounding from its nearly 15-month low of $1.1522 hit in the previous session.
A surge in energy prices has added to inflation concerns and stoked bets the Fed may need to act faster to normalize policy than previously projected.
The consumer price index rose 0.4% last month versus a 0.3% rise anticipated by economists polled by Reuters. Year-over-year, the CPI increased 5.4%, up from 5.3% in August. Excluding the volatile food and energy components, the so-called core CPI climbed 0.2% last month versus 0.1% in August.
Yields on shorter-term U.S. Treasuries rose on Wednesday, while longer-dated yields dipped following data on consumer prices that further fanned concerns inflation will continue to climb and force the Federal Reserve to take action.
The yield on the two-year Treasury note, which typically moves in step with interest rate expectations, was up 1.6 basis points to 0.364% after reaching a high of 0.394%, its highest since March 24, 2020.
The yield on 10-year Treasury notes was down 3.1 basis points to 1.549%.
Fed says it could begin ‘gradual tapering process’ by mid-November
Federal Reserve officials could begin reducing the extraordinary help they’ve been providing to the economy by as soon as mid-November, according to minutes from the central bank’s September meeting released Wednesday.
The meeting summary indicated members feel the Fed has come close to reaching its economic goals and soon could begin normalizing policy by reducing the pace of its monthly asset purchases.
In a process known as tapering, the Fed would reduce the $120 billion a month in bond buys slowly. The minutes indicated the central bank probably would start by cutting $10 billion a month in Treasurys and $5 billion a month in mortgage-backed securities. The Fed is currently buying at least $80 billion in Treasurys and $40 billion in MBS.
The target date to end the purchases should there be no disruptions would be mid-2022.
The minutes noted “participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate.”
The Fed next meets Nov. 2-3. Starting the tapering process in November is on the aggressive side of market expectations.
The minutes said members’ estimates “were consistent with a gradual tapering of net purchases being completed in July of next year.”
Reference: Reuters, CNBC
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