The dollar held near a one-year high against its major peers on Wednesday amid growing expectations that the Federal Reserve will announce a stimulus cut next month, possibly followed by an interest rate hike by mid-2022.
Three Fed officials said overnight that the US economy had healed enough to start cutting the central bank's asset purchase programme, including vice-chairman Richard Clarida.
Money markets now estimate the likelihood of a rate hike by July at around 50-50.
The dollar index, which measures the dollar against six peers, has fallen slightly to 94.460 since Tuesday, when it hit 94.563 for the first time since late September 2020.
The surge in energy prices has heightened inflation fears and given bets that the Fed may have to act faster to normalise policy than officials had predicted, pushing Treasury bond yields to their highest level in more than 18 months overnight.
Higher US yields helped the dollar hit a three-year high against the yen on Tuesday at 113.785 yen, according to Exness Broker experts. The pair last traded at 113.485.
The euro changed hands at $1.1541, within sight of $1.1522 in the previous session, the lowest level in almost 15 months. Later on Wednesday, traders will focus on consumer price data to better understand the timing of a rate hike.
"The consumer price index is a major economic driver" and "has the potential for Fed rate hike expectations to change again, one way or another," said Ray Attrill, head of currency strategy at National Australia Bank in Sydney.
Most Fed policymakers continue to argue that inflationary pressures will be temporary.
Governors Lael Brainard and Michelle Bowman are among the Fed officials due to speak later on Wednesday, when the minutes of the central bank's September meeting are also due to be released.
The pound sterling has fluctuated in the middle of this month's range, trading at $1.3596 since Tuesday, it has been little changed.
The risk-sensitive Australian dollar fell 0.2 per cent to $0.7335, retreating from Tuesday's monthly high of $0.7384.
Bitcoin traded around $56,500, after hitting a five-month high of $57,855.79 earlier in the week.
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