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The greenback along with Treasury yields and the U.S. dollar rallied on Tuesday after Federal Reserve New York Fed chief William Dudley left hawkish comments that raised market expectations of another interest rate hike in the coming weeks.

Back-to-back rate hikes?

The renewed market expectation regarding another interest rate hike was sparked by William Dudley’s upbeat evaluation of the U.S. economy on Monday. Dudley also warned against a possible pause in the central bank’s tightening cycle.

Last week, the U.S. central bank raised interest rates as expected by the majority of the markets and has remained optimistic with another interest rate hike before the year ends. Despite the current market sentiment, major market players are still doubtful on how the Fed would be able to enforce another rate hike due to the disappointing economic performance recently.

According to Dudley, U.S. inflation is currently a bit low but is expected to rise as labor market wages and conditions continue to improve giving the Federal Reserve to push through with gradually tightening U.S. monetary policy. The Federal Reserve also gave a detailed statement on its plan to cut its massive balance sheet stands at $4.5 trillion.

On the other hand, Chicago Fed President Charles Evans stated on Monday that it would be worthwhile for the U.S. central bank to wait until the end of the year prior to another interest rate hike.

USD Vs Other Majors

The dollar index which measures the US dollar against six other major currencies rallied by up to 97.623 on Tuesday to a three-week high which was its highest close since May.

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Dudley’s comments regarding the possibility of the labor market helping the inflation rate back up which would help support future plans to keep raising interest rates.

The dollar rallied to 111.90 or 3% against the yen which is the highest since May 26 coming from the greenback’s two-month low of 108.81 yen last June 14. The U.S. dollar closed 0.1% during the day at 111.67 against the day during the trading session. The dollar is expected to rally further against the yen following statement from the Bank of Japan Governor Haruhiko Kuroda that the BoJ is not in a rush to bring back its massive stimulus program.

The greenback has been recovering in the past couple of days since the Fed’s announcement last June 14 of the second rate hike for this year. The Fed also announced that it would start cutting its bonds and holdings later during the year.

The US dollar also edged higher on Tuesday after comments from the Bank of England Governor Mark Carney that there are no current plans to raise British interest rates at the moment sending the pound down by almost 0.50% against the dollar.

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