The monetary tightening cycle continues to dominate the markets

As the dollar climbs higher on Wednesday morning, the euro is pinned to a five-week low as prospects for peace in Ukraine appear dim. It is also worth noting that the Kiwi fell after New Zealand's central bank raised interest rates at a steeper pace than it had in the previous two decades in an attempt to curb inflation.

RBNZ raised rates aggressively

On Wednesday, the Reserve Bank of New Zealand's Monetary Policy Committee increased the official cash rate to 1.5% from 1%. This marked the first time the rate has been raised by such a large amount since 2000.

In response to an inflation surge that threatens to become permanent, the Reserve Bank of New Zealand is among many central banks tightening monetary policy. 

Among the latest data released on Wednesday morning, U.K. inflation surged to 7.0% in March. This exceeded expectations of a 6.7% increase, which may mean the Bank of England might have to go a bit harder on interest rates when they meet in May.

The sharp rate hike from the Bank of Canada is expected

The Bank of Canada is also expected to raise its key rate by half a percentage point to 1% later today, becoming the first member of the Group of Seven to raise rates aggressively to curb inflation at a near three-decade high. Since that is the case, traders are jittery ahead of the Bank of Canada's meeting, especially since the market is slightly short on USD/CAD. The Bank of Canada meeting may trigger a wipeout of USD/CAD shorts if they sound balanced enough.

Soaring inflation

The inflation data helped lower U.S. yields and lifted the yen briefly. Since the CPI figures are at the highest since late 1981 and the Fed is looking to quicken interest rate hikes, any decline in the dollar is expected to be relatively small. 

In March, the consumer price index (CPI) rose 8.5% year-on-year, its highest level since late 1981. Monthly changes in the CPI rose 1.2%, while the core CPI grew 6.5% year-over-year and 0.3% month-over-month.

Events of today

In addition to the BoC meeting, investors are looking forward to the latest U.S. Producer Price Index for March, which is highly expected to rise 1.1% from last month. As part of the early U.S. trading session, the EIA's official crude oil supply data is due later today. 

The American Petroleum Institute reported Tuesday that U.S. crude stockpiles rose by 7.8 million barrels last week. Still, gasoline inventories fell by 5 million barrels, indicating strong fuel demand in the United States.

With concerns lingering about even tighter market conditions should Russian supply be further reduced, oil prices edged up Wednesday, continuing the previous session's gains.