Dollar surges as Fed points to faster pace of hikes

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The US dollar has hit multi-year highs against a basket of currencies as investors take a hawkish view of the latest finely-balanced set of communications from the Federal Reserve.

In a mixed statement, the Fed maintained its pledge that rates will remain on hold for a 'considerable period of time', despite some observers expecting the phrase to be dropped.

While chair Janet Yellen attempted to reassert the dovish tone in a subsequent press conference, the central bank's latest forecasts suggested the pace of rate hikes, when they do arrive next year, will be faster than previously expected.

The dollar index jumped to a four-year high of 84.81 as a result, as well as a 14-month high against the euro and a fresh six-year high against the yen.

Japanese equity markets reacted strongly to further signs of a weakening yen, the Nikkei closing up 1.1% at 16,067, its highest level since January.

The reaction in oher equity markets was more muted: the Dow Jones rose 0.15% on the day of the announcement, to close at 17,156.85. The S&P 500 rose 0.13%, to 2,001.57, but Chinese markets fell back 0.7% after yesterday's jump.

The minutes of the Fed's latest meeting acknowledged improvements in economic activity and the labour market. But it stressed rates will stay at their historically low levels after it completes its bond-buying stimulus programme next month.

The minutes stated: "It likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the committee's 2% longer-run goal."

Two members of the Fed monetary policy committee voted against the decision, on the basis it did not reflect the economic progress made in recent months.

At the same time, interest rate projections released on Wednesday suggested when the central bank does move, it may raise rates faster than expected. In the forecast, 14 out of 17 officials said they continued to believe the first interest rate rise will be in 2015.

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