The US dollar continued to strengthen briefly on Monday after hitting a 1 1/2 year high on Friday following hawkish comments from Fed officials.
Last week the Fed clearly stated its intention to raise interest rates as early as March in its meeting. Thus Wall Street now expects as many as five rate hikes this year. However, some investors expect policymakers to prepare the market for a faster rate hike this year, coupled with high inflation last week.
The Fed could replace an interest rate hike to half a percentage point if inflation remains high, Atlanta Fed President Raphael Bostic said in one statement.
But according to Kenneth Broux, strategist at Societe Generale, "Bostic is a non -FOMC voter so he personally wasn't too impressed by his comments and statements that Bostic may be testing the market."
"The 25 basis points (basis points) or 50 basis points debate in March explains why the US dollar can continue to strengthen and the stock market can falter in the short term."
The US dollar index, which measures the US dollar against major currencies, strengthened from a low to a trading level of 97.01 before trading slightly lower.
A faster rate of increase is also seen to slow future growth.
On the other hand, the Bank of England (BoE) will hold a meeting on Thursday where economists predict a second rate hike in less than two months after UK inflation soared to its highest level in almost 30 years.
The European Central Bank will also hold a policy meeting on Thursday. Despite expectations of no policy change, analysts are beginning to warn that a rate hike from the Fed will influence the ECB to act.
