LYNXMPEB2I0SI L – The dollar was up on Thursday morning in Asia, amid growing expectations that the U.S. Federal Reserve will slowly but surely move towards discussing a tighter monetary policy.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.01% to 90.037 by 12:29 AM ET (4:29 AM GMT), surpassing the 90-mark.

The USD/JPY pair inched down 0.06% to 109.07. The yen has been boxed its tightest range against the dollar since December 2019 as it reacted to U.S. rates movements, according to RBC Capital Markets. U.S. yields rose during the previous session, with the benchmark 10-year Treasury yield up 1.7 basis points to 1.5808%.

The AUD/USD pair inched down 0.01% to 0.7738, as Australia’s second-most populous state of Victoria entered a week-long lockdown to curb its latest COVID-19 outbreak.

The NZD/USD pair edged up 0.12% to 0.7289. Investors are still digesting the Reserve Bank of New Zealand’s policy decision, handed down on Wednesday. The decision reinstated the central bank’s rates outlook and projected rates rising from 0.25% currently to 0.49% by September 2022 and to 1.78% by June 2024.

The USD/CNY pair inched down 0.07% to 6.3861. U.S.-China relations were on investors’ radars as U.S. Trade Representative Katherine Tai and Chinese Vice Premier Liu He had a “candid” first phone conversation. The phone call was one of the few top-level meetings between the two countries since U.S. President Joe Biden took office in January 2021.

The GBP/USD pair inched up 0.01% to 1.4116.

Although the Fed has insisted that it would maintain its current dovish policy, some Fed officials have hinted in recent comments that the time to discuss a shift in policy could be approaching sooner than expected.

Fed vice chairman for supervision Randy Quarles said on Wednesday that though “we need to remain patient” in any policy shift, “if my expectations about economic growth, employment and inflation over the coming months are borne out … and especially if they come in strong … it will become important for the (Federal Open Market Committee) to begin discussing our plans to adjust the pace of asset purchases at upcoming meetings.”

Quarles’ comments echoed comments made by Fed Vice Chairman Richard Clarida earlier in the week and reinforced the possibility of a policy shift for some investors.

“That’s probably behind the dollar strength we’re seeing at the moment… the personal consumption expenditures (PCE) deflator will be even more closely watched,” Commonwealth Bank of Australia (OTC:CMWAY) currency strategist Kim Mundy told Reuters, referring to the Fed’s preferred inflation gauge due to be published on Friday.

“The fact that we’re expecting to see quite a strong jump in headline inflation might just reinforce market expectations that maybe the Fed is on track to introduce tapering later in 2021,” she added.

Further U.S. data, including GDP for the first quarter of 2021, due to be released later in the day. Other data to be released include initial jobless claims for the past week, as well as Core Durable Goods Orders and Pending Home Sales for April.

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