The dollar hovered near a one-year high on Wednesday, amid growing expectations that the Federal Reserve will announce a reduction in stimulus next month, with the potential for a rate cut in mid-2022 among the hottest Forex news in financial markets. Three Fed officials said on Tuesday that the U.S. economy has recovered enough to begin tapering the bank’s asset-purchase program, including Vice Chairman Richard Clarida.

For now, money markets are pricing in a 50-50 chance of a July rate hike. The dollar index, which measures the greenback against six rivals, was down slightly at 94.356 on Tuesday, after touching 94.563 for the first time since late September 2020. A surge in energy prices has stoked inflation concerns and fueled speculation that the Fed may need to move more quickly with its efforts to normalize policy than officials have projected.

The surge also sent the two-year Treasury yield to a more than 18-month high overnight. The U.S. helped send the three-year dollar higher against the yen on Tuesday to 113.785 yen, last trading at 113.575. The euro changed hands at $1.1522, a 15-month low. Traders will focus on consumer price data on Wednesday for further moves toward higher rates.

"CPI is the main economic draw" and "has the potential to see the Fed's rating exceed expectations by another notch or more," said Ray Attrill, chief foreign exchange strategist at National Australia Bank in Sydney. Most Fed policymakers went on to say inflationary pressures would persist for a while. Governor Lael Brainard and Michelle Bowman, among the Fed's top officials, said Wednesday that the central bank's September meeting schedule is also due to be released.

"Today the FOMC released confirmation that the November announcement will be hard for the FED to resist but also that there will be a discussion about the potential impact of further tightening by the US and also on global finance," said Valentine Marinov, head of G10 FX research at Credit Agricole. "We also believe that, after a rather mixed US jobs report in September and the delays on the resolution of the US debt issue, the FED may eventually opt to start a more gradual QE tapering.

Sterling has been mixed in the middle of the month, hovering slightly higher than Tuesday at $1.3624. The Aussie dollar is also risk-sensitive, trading flat at $0.7347, off a one-month high of $0.7384 hit on Tuesday. Bitcoin, meanwhile, is trading around $54,765, after hitting a five-month high of $57,885.79 earlier in the week.