The Federal Open Market Committee will decide on a rate hike at its meeting March 14-15. Fed officials at the meeting discussed whether improving conditions warranted faster movement, but "participants generally characterized their economic forecasts and their judgments about monetary policy as little changed since the December meeting", the minutes said.
Dudley, a close ally of Fed Chair Janet Yellen and a permanent voter on policy, said we have seen a "very large" rise in household and business confidence and "very buoyant" financial markets since the November election, "and we have the expectation that fiscal policy will probably move in a more stimulative direction".
"If that's the case, they stop reinvesting the coupons and maturities into the long end of the yield curve which would place some upward pressure on long bond yields in the U.S.", said Richard Grace, chief currency and rates strategist at Commonwealth Bank.
Euro declined against the dollar on Wednesday as the greenback strengthened after hawkish comments from two Federal Reserve officials late on Tuesday increased expectations that the USA central bank is closer to raising interest rates.
US gold futures fell 0.3 percent to $1,246.60. It remains to be seen whether the US ones follow suit given the lack of clarity with regard to stimulatory measures, while the Fed threat of higher interest rates and a strong dollar may depress the prices of companies which are dependent on exports.
The dollar index.DXY, which measures the greenback against a basket of six major currencies, hit a seven-week high.
Ryuta Otsuka, a strategist at Toyo Securities in Tokyo, told Bloomberg News: "Investors are feeling relieved".
According to experts, higher USA interest rates may destroy the non-interest bearing gold whereas, a surge in dollar is likely to make the gold more expensive for buyers, facilitating other currencies.
Rate-sensitive two-year yields US2YT=RR edged up to 1.292 percent, off Wednesday's peak of 1.308 percent, its highest since 2009.
The hardening prospect of a USA rate rise this month together with some disappointing manufacturing data saw the pound weaken to six-month lows against the dollar today. Carl Tannenbaum, chief economist at Northern Trust in Chicago, said the comments from Dudley and Williams placed even more importance on Yellen's upcoming speech.
The Euro could rise back today when the German inflation figures for February come out as these are expected to show rising inflation on the month and the year.
President Donald Trump is preparing to outline spending plans in a speech in Washington, bolstering expectations for a pickup in the economy. The pair was supported further by this week's decent Eurozone data.
United States stocks touched new record highs last night as talk of a pending rate hike overshadowed Trump's address to Congress on Tuesday night. The Nasdaq composite sank 0.6% while the small-cap Russell 2000 stumbled 1.5%.
Spot silver fell 0.2 percent to $18.38 an ounce.
Wan-Chong Kung, a bond manager at Nuveen, pegs the threshold which the Fed needs the market to reach being an 80% likelihood of a rate increase.