Dollar hits new near 2-year high against euro

142
3
Dollar hits new near 2-year high against euro

The dollar rose to a new near two-year peak against a basket of peers and a one-month high against the euro, supported by the prospect of a more aggressive pace of Federal Reserve interest rates hikes.

The dollar index rose to a new high of 99.904 in early Asia trade, its highest level since May 2020.

The index is up 1.2% this week, which would be its biggest advance in a month, backed by hawkish comments from several Federal Reserve policy makers who are calling for a faster pace of interest rate increases to curb rapid inflation.

In March, the minutes of the Fed's March meeting showed that many participants were prepared to raise interest rates in 50 basis-point increments in the coming months.

Simon Harvey, head of FX analysis at MonFX, said recent gains in the dollar index seemed to be sustainable over the rest of the month as markets settle in on the idea of a more aggressive Federal Reserve in Q2, as well as recent gains in the dollar index.

We believe further upside in the dollar is unlikely to occur without a re-calibration of the Fed's terminal rate in markets. This is due to the limited upside in current Fed pricing based on current fundamentals. The euro dropped to a new one-month low of $1.0856 in early trade on Friday, hurt by the new Western sanctions on Russia, with the European Union moving to a ban on Russian coal set to take effect from August.

The European Central Bank is grappling with inflation, but the recent inflation shock, which has given EURUSD a modicum of support around the 1.09 handle, continues to be under pressure from European energy prices and calls for further sanctions on Russian energy exports to the eurozone, suggesting further declines in EURUSD, said Harvey.

The common currency has been dragged down by uncertainty surrounding the outcome of the French election, as far-right candidate Marine Le Pen gains in the polls have dragged down the re-election hopes of incumbent Emmanuel Macron. The polls show Macron ahead.

The common currency has also been dragged down by uncertainty surrounding the outcome of the French election, as far-right candidate Marine Le Pen gains in the polls have dragged down the re-election hopes of incumbent Emmanuel Macron. The polls show Macron ahead.

The dollar increased its gains against the Japanese yen, to 124.23, its highest in over a week, and testing last month's near seven-year high of 125.1.

The yen has steadied this month after tumbling in March, but is under pressure due to the US raising interest rates and the Bank of Japan intervening in the bond market to keep rates low.

Commodity currencies like the Australian and Canadian dollars have taken a breather after gaining strongly in recent weeks, despite a slight drop in oil and other commodity prices.

The pound was at the low end of its recent range at $1.30695.

In the past two week lows of $42,742, the price of the digital currency was trading around $43,300, just off its overnight two-week low of $42,742.