The dollar edged higher in early European deals on Thursday after the US Federal Reserve signaled it would raise interest rates more than expected, while the pound retreated ahead of the Bank of England monetary policy meeting.

At 3:55 AM ET (0755 GMT), the dollar index, which tracks the dollar against a basket of 6 other currencies, traded 1.1% higher at 112.412, rising to its highest level in a week.

On Wednesday, the US central bank announced another rate hike of 75 basis points, the fourth such increase in a row.

This was widely expected, and comments from Fed Chairman Jerome Powell, who indicated that fighting inflation would require further increases in borrowing costs, helped lift the dollar.

“Incoming data since our last meeting indicates that the final interest rate will be higher than previously expected,” Powell said, adding, “It is now very premature to think about a pause. We still have a long way to go.”

Those comments ended hopes that he would signal a move to a less hardline stance in the coming months.

However, even if US officials slow down or halt the current rate hike campaign, the dollar will enjoy a tailwind next year, according to former US Federal Reserve chairman Alan Greenspan.

Even if, as some forecasters expect, U.S. inflation peaks in the first half of 2023 and the Federal Reserve is able to slow or even halt the pace of rate hikes, the U.S. dollar will still have a monetary tailwind to support,” Greenspan said. , economic adviser to Advisors Capital Management, in a note Wednesday.

EUR/USD fell 0.4% to 0.9777 as the US Federal Reserve seized the initiative to tighten monetary policy from the European Central Bank after the ECB hiked rates by 75 basis points last week.

USD/JPY traded unchanged at 147.89 during slow holiday deals; however, traders remain on the lookout for interventions after Japan spent a record $42.8 billion to support the yen last month, on top of nearly $20 billion spent in September.

GBP/USD fell 0.5% to 1.1336 ahead of the Bank of England’s latest monetary policy meeting later in the session.

The UK central bank is expected to raise interest rates by three-quarters of a percentage point to 3%, the biggest rate hike since 1989, with the base rate rising to around 5% in mid-2023.

“We believe the risks for the pound are skewed to the downside ahead of this week’s BoE meeting,” Matthew Ryan, head of market strategy at global financial services firm Ebury, said in a note. “Recently, the bank has been surprising with its dovish stance, and we believe that market participants may be disappointed yet again.”

AUD/USD fell 0.6% to hit 0.6312 while USD/CNY rose 0.4% to hit 7.3175, climbing to nearly a 15-year high after a private survey showed that the services sector in the country contracted more than expected in October due to ongoing COVID-19-related disruptions.