Dollar flat to slightly up ahead of Fed guidance

NEW YORK: The US dollar was flat to slightly higher on Wednesday, with 10-year Treasury yields hitting fresh 13-month highs ahead of the outcome of a Federal Reserve policy meeting which could shed some light on the timing of future rate hikes and the central bank's tolerance for rising yields.

With Fed policymakers expected to forecast the fastest US economic growth in decades in the wake of COVID-19 vaccinations and $1.9 trillion in new stimulus, market participants will be focused on clues that the central bank could start raising rates in 2023, earlier than it had said.

"The spike in US yields dictated the positioning before the Fed," said Edward Moya, senior market analyst, at online FX broker OANDA.

"The market is anticipating a much more optimistic outlook by the Fed and with that you're going to get higher Treasury yields, and that would be supportive for the dollar," he added.

The US benchmark 10-year note yield rose to a 13-month peak of 1.676% and was last up at 1.655%.

Ahead of the Fed statement later on Wednesday, eurodollar futures, which track short-term rate expectations, have priced a 90% chance of a rate hike by December 2022, with three hikes seen in 2023.

In mid-morning trading, the dollar index was flat at 91.865.

The euro was up 0.1% at $1.1912, after declining in the past three sessions.

Hurt by a possible delay in the European Union's vaccination effort, the euro seemed set to test last week's 3-1/2-month low of $1.1835.

Europe's medicines watchdog will release results of its investigation into incidents of bleeding, blood clots and low platelet counts in recipients of AstraZeneca's coronavirus vaccine on Thursday afternoon.

Europe's painful recovery from the pandemic is in sharp contrast with other economies, which seem less dependent on monetary stimulus to pull though.

The Bank of Canada for instance is likely to reduce its bond purchases as soon as next month, strategists say.

The rouble fell 1.3% against the greenback to 73.78 per dollar, after US President Joe Biden said Russian President Vladimir Putin would face consequences for directing efforts to swing the 2020 US presidential election to Donald Trump.

Against the yen, the greenback firmed 0.2% to 109.17 yen, hovering near nine-month highs hit this week.

The British pound was flat at $1.3896%, recovering from profit-taking after it hit a near three-year high last month on the back of a fast vaccine roll-out.

Commodity-linked currencies including the Australian dollar, the New Zealand dollar and the Canadian dollar traded lower against the US dollar.

In the cryptocurrency market, bitcoin fell 3.4% to $54,978.00, slipping further away from a record high of $61,781.83 hit on Saturday.