2022.04.0520:36:00UTC+00Dollar Gains Against Major Counterparts Amid Rate Hike Bets

The U.S. dollar climbed higher on Tuesday amid expectations the Federal Reserve will start tightening its monetary policy to rein in inflation.

Remarks by Federal Reserve Governor Lael Brainard at a Minneapolis Fed conference that the central bank would start reducing its balance sheet at a "rapid pace" as soon as the May meeting, pushed up the dollar.

"Given that the recovery has been considerably stronger and faster than in the previous cycle, I expect the balance sheet to shrink considerably more rapidly than in the previous recovery," Brainard said in prepared remarks.

She added, "The reduction in the balance sheet will contribute to monetary policy tightening over and above the expected increases in the policy rate reflected in market pricing and the Committee's Summary of Economic Projections."

Bond prices fell and remained firmly negative right through the afternoon. The yield on the benchmark ten-year note, which moves opposite of its price, surged 14.4 basis points to 2.556%, hitting its highest closing level in almost three years.

The dollar index climbed to 99.52, gaining more than 0.5%.

The Fed minutes of its March meeting, due to be released on Wednesday, may provide additional clues about the outlook for monetary policy.

CME Group's FedWatch tool is currently indicating a 76.6 percent chance the Fed will raise rates by 50 basis points next month.

A report released by the Institute for Supply Management this morning showed U.S. service sector growth reaccelerated in the month of March.

The ISM said its services PMI rose to 58.3 in March from 56.5 in February, with a reading above 50 indicating growth in the sector. Economists had expected the index to rebound to 58.0.

The slightly bigger than expected increase by the services PMI follows three consecutive monthly decreases after the index reached a record high in November.

A separate report released by the Commerce Department showed the U.S. trade deficit was nearly unchanged in February, as imports and exports both increased.

Against the Euro, the dollar firmed to $1.0907, gaining more than 0.6% from $1.0974.

The dollar is trading at $1.3073 against Pound Sterling, firming from $1.3114.

The dollar strengthened against the Japanese currency, fetching 123.63 yen a unit, compared with 122.79 yen on Monday.

Against the Aussie, the dollar is weak at 0.7579, easing from 0.7543.

The Swiss franc is losing ground against the dollar, dropping to CHF 0.9295, giving up more than 0.3%.

The Loonie is flat at C$1.2489 a dollar, after having firmed to C$1.2403 earlier. Canada posted a trade surplus of C$ 2.66 billion in February of 2022, narrowing from an upwardly revised 13-year high surplus of C$ 3.12 billion in the previous month, data from Statistics Canada showed. Oil's retreat from higher levels weighed on the Canadian currency.