Dollar holds near 2-year highs

The dollar hovered near two-year highs against a basket of major currencies on Thursday after meeting minutes showed the Federal Reserve preparing to move aggressively to fight inflation, while commodity currencies fell further from recent peaks.

The euro bucked the trend but was near a one-month low below $1.09 as investors await European Central Bank minutes due later.

Minutes from the March Fed meeting published on Wednesday showed  "many" participants were prepared to raise interest rates in 50-basis-point increments in coming months.

They also prepared markets for a reduction in the Fed's balance sheet after the May meeting at a rate of $95 billion per month, the beginning of the reversal of the massive stimulus in pumped into the economy after the Covid-19 pandemic struck.

"That's nearly twice as quick as was seen during the last balance sheet run down during the 2017-19 cycle," ING analysts said.

"All of the above points to the Fed applying a heavy foot to the brakes, which should be positive for the dollar."  By 0745 GMT, the US dollar index traded at 99.581, near a 2-year high of 99.778.

The Australian and New Zealand dollars fell between 0.3 per cent-0.2 per cent to sit around 2 per cent beneath highs struck on Tuesday as the Fed's tone has offset a hawkish shift from Australia's central bank, and a pullback in commodity prices whacked them.

Minutes from the ECB's March meeting, due later in the day, will be watched for insight into policymakers' delicate balancing act to manage soaring inflation and slowing growth.