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The US dollar broke to its strongest position against its major peers so far in 2022 on Wednesday evening, after the FOMC delivered a hawkish message following its January meeting.

The main focal point of the week in the currency market is almost upon us, with the Federal Reserve set to announce its latest policy decision later today.

Trading in financial markets in the past 24 hours or so can very much be described as ‘risk off’, with a deterioration in risk appetite causing market participants to flee higher risk investments.

Last week saw the continuation of an interesting theme, in which emerging market currencies continue to hold their own even as stock markets in developed countries are shaken by bouts of risk aversion.

Investor expectations for the pace and timing of Federal Reserve interest rate hikes has been the main talking point in financial markets so far this year.

Most major currencies have traded within relatively narrow ranges versus the dollar in the past couple of trading sessions, as the scorching move higher in US yields pauses for breath and investors patiently await next week’s FOMC meeting.

The pound rose to its strongest position versus the common currency since February 2020 on Wednesday after data showed that UK inflation jumped to its fastest pace in 30 years in December.

Most currencies lost ground against the resurgent dollar on Tuesday, with a sharp move higher in US yields providing solid incentive for investors to unwind last week’s bearish greenback bets.

The US dollar regained a portion of its recent losses as markets opened for the week on Monday, with the dollar index up around half a percent on last week’s two month lows.

The dollar is struggling so far in 2022 even as US Treasury yields surge higher and the market prices in a faster hiking cycle from the Federal Reserve.