The dollar is spiking against rival currencies as Fed boss Powell delivers tough talk on rate hikes

• A key dollar benchmark reached its highest so far in 2023 on Wednesday.
• Investors are preparing for the Fed to ramp up the pace of interest rate hikes.

A widely watched gauge of the US dollar hit its highest point of 2023 on Wednesday as investors continued to price in more bullish odds that the Federal Reserve is set to quicken the pace of its fight inflation.

The US Dollar Index rose to 105.88, the highest level since early December. The index increased modestly, up about 0.1%, during the day after surging by more than 1% on Tuesday. Tuesday's rally in the greenback burned as Fed Chairman Jerome Powell opened the door to a larger-than-anticipated rate increase of 50 basis points at its March 21-22 meeting.

The Fed "would be prepared to increase the pace of rate hikes," if the totality of the incoming economic data were to warrant such moves, he said.

The dollar's advance on Wednesday was tempered as Powell indicated to House lawmakers that "no decision" about ramping up the size of rate hikes has been made.

Dollar strength is on the radar as it can pressure international revenue made by US companies. Roughly 30% of S&P 500 companies pull in sales from overseas, according to FactSet data last year.

Traders have inflicted "important technical damage" on rival currencies as they've propelled the greenback higher, Marc Chandler, managing director at Bannockburn Global Forex, wrote in an early Wednesday note.

Among the moves, the euro fell through last month's low of around $1.0535. The dollar against the Japanese yen pushed near 138 yen to mark its best level since mid-December, and it set a new 2023 high against the Canadian dollar at around CAD 1.3775.

"The dollar's surge proved too much for even the high-flying Mexican peso," said Chandler, noting the peso's drop of about 0.6% was its largest in a month.

The Dollar Index has gained more than 2% this year after hitting a two-decade high in 2022.