NIONIAN, November 11 - The dollar reached a 20 month high against the euro and other currencies on Thursday and the yen fell back towards a multi-year lows after the hottest U.S. inflation reading in a generation encouraged bets on interest rate hikes.
In the last month, consumer prices in the United States grew at their highest annual pace since 1990, and traders think the Federal Reserve could respond by lifting interest rates faster than in Europe and Japan.
The euro was pummelled as the European Central Bank is lagging on policy tightening. It slumped to $1.1459 on Thursday, its lowest since July 2020.
The pound was down at a new 11 month low of $1.3388, with better than expected GDP data in Britain doing little to support the pound.
The new gains were extended to 114.15 per dollar - close to the Japanese currency's four-year low of 114.69 reached last month. The Australian and New Zealand dollars recorded one-month troughs.
The dollar rose 0.2% to 95.02. It was its strongest since July 2020, against a basket of currencies.
The dollar's jump was behind the sharp rise in U.S. government bond yields, including the 30 year Treasury passing 1.5%, according to analysts.
Whether investors will drive the euro-USD drop towards the next support levels at around $1.1425 and $1.1380, will be the main test for the FX market today, according to UniCredit analysts.
The further rise in long-term UST U.S. Treasury yields will likely be dependent on the further rise in UST Treasury yields and the additional increase in yield spreads between USTs and German Bunds. After the surge in Treasury yields and yields in the same tenor in Japan and Germany, the difference between five-year U.S. yields and yields at the same tenor is more wide in favor of Treasuries than at any time since early 2020.
The dollar's wide rise has also suffered from the dollar, with the EM currency index of MSCI suffered its sharpest drop in two months.
The Australian and New Zealand dollars fell, pushed lower due to weaker commodity prices. The Aussie fell 0.4% to a one-month low of $7296, and the kiwi dropped 0.4% at $7032.
The strategist of the Deutsche Bank, Alan Ruskin, said we are in a stand-off from an FX stand point.
If Fed won't respond to high inflation, it is dollar negative, if the Fed brings forward tightening, it isUSD positive. The dollar is stuck between these two worlds right now.