Early on Thursday, the US dollar is holding close to the highest levels seen since a year against other major currencies, continuing to trade strong as investors look forward to the Fed beginning to withdraw stimulus measures and possibly implement rate hikes earlier than planned. At the time of writing, the US dollar index DXY is trading at around 94.27.

In addition to the Fed’s hawkish tilt, the greenback enjoyed support as a safe haven asset amid rising worries about high inflation and a weakening in the pace of global economic recovery from the pandemic-driven downturn. In addition, investors are also worried about the US debt ceiling which could push the government into shutdown.

Investors expect the Fed to consider implementing its first post-pandemic rate hike by late 2022, against the original plan of 2023. Analysts foresee the period of strength in the US dollar to continue in the short-term, being supported by hawkish tones from Fed policymakers even as it receives a boost from the risk-averse and cautious mood in global markets.

Meanwhile, safe haven Japanese yen has recovered slightly after falling below the 112 level against the US dollar in the previous session but continues to trade near multi-month lows. The Euro is holding close to the 1.16 mark after slipping below it briefly in the previous session.

High inflation worries continue to persist and weigh on investor sentiment. At an ECB forum in the previous session, Fed Chair Jerome Powell, ECB President Christine Lagarde and BOE Governor Andrew Bailey highlighted this as a key concern, especially in the wake of rising commodity and raw material costs amid disruptions in global supply chains.