The US dollar is starting the new trading week on a bullish footing, soaring close to the highest levels seen in over two weeks on the back of higher than expected inflation supporting expectations for the Fed to hike rates sooner than planned. At the time of writing, the US dollar index DXY is trading at around 94.24.

The greenback ended the previous session on a high note not seen since mid-October and is starting Monday just a little lower than this level. Meanwhile, it is trading above the 114 level against the safe haven Japanese yen on account of political developments which could support the rollout of more stimulus measures in Japan.

The Fed and its monetary policy are back in the limelight this week as the FOMC is likely to announce measures to start tapering monetary stimulus. A sharp spike in core PCE across the US has once again raised hopes for faster rate hikes as this is a key gauge the Fed refers to when measuring inflation in the country.

Futures on the fed funds rate now anticipate a 0.25% rate hike announcement from the Fed as soon as June 2022, followed by one more rate hike by December next year. This would be faster than the US central bank’s original plans to keep interest rates at record lows at least until 2023.

Investor focus will also shift to commodity currency AUD this week, with the RBA’s monetary policy meeting coming up. Although the Aussie central bank has signaled no interest in hiking rates till 2024, the high inflationary pressures have markets expecting a reversal of this decision soon. Any clues towards a change in the dovish outlook will be closely monitored by traders.