By Julien Ponthus

LONDON (Reuters) – The U.S. dollar firmed on Wednesday with 10-year Treasury yields hitting fresh 13-month highs ahead of a Federal Reserve policy meeting which could shed some light on the timing of future rate hikes and the central bank’s tolerance for rising yields.

With Fed policymakers expected to forecast the fastest U.S. economic growth in decades in the wake of COVID-19 vaccinations and $1.9 trillion in new stimulus, market participants will be focused on clues that the central bank could start raising rates in 2023, earlier than it had said.

In any event, expectations of a faster-than-expected economic recovery will likely weigh.

“U.S. yields might receive further upwards thrust and pull the dollar along with them in the absence of a clear commitment on the part of the Fed that a further rise in yields is undesirable”, Commerzbank analyst Antje Praefcke wrote in a morning note.

She added that because the European Central Bank had in contrast committed to increasing the pace of bond buying to keep a lid on rising yields, the euro might suffer against the dollar in the short term.

By midday in Europe, Benchmark 10-year Treasury yields had crossed the 1.67% bar, their highest level since February 2020.

The euro was down 0.05% at $1.1896 after declining in the past three sessions.

Hurt by a possible delay in the European Union’s vaccination effort, the euro seemed set to test last week’s 3 1/2-month low of $1.1835.

Europe’s medicines watchdog will release results of its investigation into incidents of bleeding, blood clots and low platelet counts in recipients of AstraZeneca’s coronavirus vaccine on Thursday afternoon.

“There is a risk that public trust on the vaccine has been compromised, and this may weigh on the euro as the vaccination gap between the EU and US may widen even further,” ING analysts warned.

Europe’s painful recovery from the pandemic is in sharp contrast with other economies, which seem less dependent on monetary stimulus to pull though.

The Bank of Canada for instance is likely to reduce its bond purchases as soon as next month, strategists say.

At 1155 GMT, the dollar index was up 0.09% and stood at 91.952, having already risen for three straight sessions on support mainly from elevated U.S. bond yields.

The rouble fell 1.5% against the dollar to 73.78 after U.S. President Joe Biden said Russian President Vladimir Putin would face consequences for directing efforts to swing the 2020 U.S. presidential election to Donald Trump.

“They’re will be more sanctions coming, that is clear, the question is how severe,” said North Asset Management fund manager Peter Kisler.

Against the yen, the greenback firmed 0.18% to 109.19 yen, hovering near nine-month highs hit this week.

The British pound was up 0.04% at $1.3901 recovering from profit-taking after it hit a near three-year high last month on the back of a fast vaccine roll-out.

Commodity-linked currencies including the Australian dollar, the New Zealand dollar and the Canadian dollar traded lower against the U.S. dollar. [MET/L] [O/R]

In the cryptocurrency market, bitcoin fell 3.6% to $54,870.00, slipping further away from a record high of $61,781.83 hit on Saturday.

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Currency bid prices at 1200 GMT

Description RIC Last U.S. Close Previous Session Pct Change YTD Pct Change High Bid Low Bid

Euro/Dollar $1.1892 $1.1903 -0.09% -2.67% +1.1917 +1.1887

Dollar/Yen 109.1850 109.0200 +0.15% +5.71% +109.2250 +109.0650

Euro/Yen 129.85 129.75 +0.08% +2.31% +130.0000 +129.7200

Dollar/Swiss 0.9285 0.9248 +0.38% +4.93% +0.9285 +0.9248

Sterling/Dollar 1.3896 1.3895 +0.01% +1.72% +1.3929 +1.3880

Dollar/Canadian 1.2470 1.2448 +0.18% -2.07% +1.2476 +1.2434

Aussie/Dollar 0.7713 0.7746 -0.42% +0.27% +0.7747 +0.7713

NZ Dollar/Dollar 0.7165 0.7190 -0.33% -0.21% +0.7194 +0.7166

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Julien Ponthus and Marc Jones in London; Editing by Sam Holmes, Gerry Doyle, Andrew Cawthorne and Giles Elgood)