The dollar hit a fresh five-year high against the yen on Friday following the strong US inflation report, while the euro struggled to hold on due to the European Central Bank’s hawkish bias. offset by growth risks arising from the Ukraine crisis. The greenback touched 116.39 yen in the early hours, its best level since January 2017, while the pound fell to $1.3089, after shedding 0.8% overnight to touch the low. lowest in 16 months. Data on Thursday showed consumer prices in the United States rose 7.9% year on year in February, the biggest annual increase in 40 years.
Both the pound and the euro were impacted by the conflict in Ukraine which led to rising energy prices. The euro was last at $1.1010 after ending an active Thursday, down 0.8%, although on the day it rose to $1.112 and fell to 1.0975. “The most hawkish message from the ECB puts temporary upside pressure on the euro, but it is very short term, which tells you that other dynamics outweigh any consideration of what BCE does can do, including news from Ukraine,” said Cantrill.
The CPI data “basically indicates that the Fed should raise rates this month, but it also indicates that it will continue at least initially,” said Rodrigo Cantrill, currency strategist at National Australia Bank, said. The Fed and the Bank of Japan will have policy meetings next week, but while the Fed will certainly raise interest rates from their pandemic lows, the BOJ is likely to remain an outlier and the only one. maintained a dovish stance on monetary policy, weighing on the yen. The dollar has gained 1.3% against the Japanese currency this week.
The ECB on Thursday announced that it would phase out stimulus measures in the third quarter, opening the door for a rate hike before the end of 2022 to combat soaring inflation. It also slightly lowered growth forecasts for this year and next, while raising inflation expectations, with ECB President Christine Lagarde calling the conflict a “turning point for the European economy”, which will slow growth but boost inflation. Negotiations between the foreign ministers of Ukraine and Russia on Thursday produced no tangible progress toward ending the war, now into its third week.
Elsewhere, high commodity prices continued to boost the Australian and New Zealand dollars. The Aussie was at 0.734 after gaining 0.49% overnight, while the Kiwi was at 0.6854 after gaining 0.36% overnight. Bitcoin is at around $39,000, little changed for the week, despite a few volatile days as prices rose following an executive order from US President Joe Biden asking the government to prepare a report on the currency’s future.
- Due to yen pressure and GDP uncertainties, the dollar has hit a 5-year high
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