By Saikat Chatterjee

LONDON (Reuters) – The U.S. dollar resumed its climb towards a recent 14-month high on Wednesday as minutes of the latest Federal Reserve policy meeting fuelled expectations of a U.S. rate increase as early as March.

The Fed’s December meeting minutes showed officials had discussed shrinking the U.S. central bank’s overall asset holdings as well as raising interest rates sooner than expected to fight inflation.

Money markets are now pricing nearly an 80% probability of a U.S. interest rate rise by March and more than 80 basis points of cumulative rate increases in 2022, a breathtaking shift in expectations considering that only three months ago investors were not expecting the first U.S. rate hike until the summer of 2023.

While on the surface, the dollar index was only marginally higher from Wednesday’s levels, the greenback took big strides against some of its rivals such as the Australian and Canadian dollars.

Broadly, the dollar index edged 0.2% higher at 96.393, within striking distance of a November high of 96.938, which was the highest level since July 2020.

“Overall the hawkish tone of the minutes support our outlook for further US dollar strength at the start of this year,” MUFG strategists said.

The Aussie slid more than 1% to $0.7146, from as high as $0.7273 on Wednesday.

Sterling traded down 0.3% at $1.3507, having retreated overnight from the $1.3599 level – its highest in nearly two months – following the Fed minutes.

The euro stood broadly unchanged around $1.13 as it continued to consolidate in the middle of the trading range in which it has sat since mid-November.

“Trend and momentum dynamics continue to favour the USD, but prices will have to pierce the Q4 2021 highs in order to reassert the uptrends in most cases,” particularly against the euro, sterling and Australian dollar, George Davis, a strategist at RBC, wrote in a report.

Cryptocurrencies were among the hardest hit in the overnight market selloff with Bitcoin nursing losses below the $43,000 levels after falling more than 5% overnight.

(Reporting by Saikat Chatterjee; Editing by Alex Richardson)