Dollar hovers near six-week high

The dollar was little changed on Wednesday, continuing to trade near six-week highs on the back of strong economic data.

Survey data released on Tuesday showed US business activity unexpectedly rebounded in February to reach its highest in eight months. In the euro zone, a survey-based gauge of activity also surged, hitting a nine-month high.

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The signs of economic strength caused traders to pencil in further interest rate hikes from the Federal Reserve on Tuesday, driving the US S&P 500 stock index 2 per cent lower and the dollar up 0.3 per cent.

On Wednesday, the euro was flat at $1.065, just above Friday's six-week low of $1.061. The dollar index was up less than 0.1 per cent at 104.22, not far off the six-week high of 104.67 hit at the end of last week.

Investors' focus now turns to the release of the minutes from the Fed's latest meeting later on Wednesday, which could offer more insight into policymakers' plans.

"We've been in this dollar rebound for three weeks. The fundamental driver essentially is the market repricing Fed hikes higher," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

"That's the near-term momentum and that's the path of least resistance," Tan said. "I wouldn't fight it for now... a further extension of this rally is likely in my view."

A blockbuster US employment report in early February sparked the rebound in the dollar, which has been helped along by a series of strong data releases.

Traders on Tuesday were projecting the Fed's main interest rate would rise to peak around 5.35 per cent in July, according to Refinitiv data based on derivative market pricing.

At the start of February, expectations were for a peak just below 5 per cent. The Fed has raised rates to a range of 4.5 per cent to 4.75 per cent, from 0 per cent to 0.25 per cent as recently as March 2022.

Investors have also increased their ECB rate bets. Deutsche Bank on Tuesday said it now expects rates to rise to 3.75 per cent, having previously expected them to rise to 3.25 per cent from their current level of 2.5 per cent.

The dollar slipped 0.1 per cent to 134.85 yen, after rising more than 0.5 per cent on Tuesday.

The pound was down 0.26 per cent to $1.208. It climbed 0.6 per cent on Tuesday after British survey data also came in strong.

Over in the antipodes, the kiwi was last flat at $0.622, after having risen to an intra-day high of $0.625 earlier in the session following a hawkish rate hike from the Reserve Bank of New Zealand.