According to the New York Federal Reserve, one-year inflation expectations rose to 3.0% in the latest survey from 2.8% previously and the highest reading since the middle of 2015.
Inflation expectations will be an important element of Fed thinking over the next few months, especially as the FOMC had worried previously that low expectations would prevent a rise in the inflation rate. Dallas Fed President Kaplan stated that the Fed should raise interest rates again sooner rather than later with rates increasing in a gradual and patient manner.
The dollar’s trade-weighted index hit the highest level for over three weeks and the Euro dipped to test support below the 1.0600 level as strong risk appetite curbed Euro support.
Commentary from Fed Chair Yellen will be watched very closely on Tuesday with markets currently putting the chances of a March interest rate increase at around 22%.
Any hints of a March hike would provide further net dollar support as the Euro edged back above 1.0600 on a wider US retracement.