HONG KONG Reuters - The dollar reached 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 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, its biggest advance in a month, backed by hawkish remarks from several Federal Reserve policy makers who are calling for a faster pace of interest rate increases to curb rapid inflation.
The minutes of the March meeting of the Fed showed that many participants were prepared to raise interest rates in 50 basis-point increments in the coming months.
Without a re-calibration of the Fed's terminal rate in markets, we believe that further upside in the dollar is unlikely to occur. 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 new Western sanctions on Russia, with the European Union moving to a ban on Russian coal set to take effect from August.
Inflation is still a concern for the European Central Bank, but the recent inflation shock has provided EURUSD with a moderate amount of support around the 1.09 handle, but sustained pressure from European energy prices and calls for further sanctions on Russian energy exports to the eurozone suggests further declines in EURUSD, said Harvey.
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 stabilised this month after tumbling in March, but is under pressure due to the U.S. raising interest rates and the Bank of Japan intervening in the bond market to keep rates low.
Commodity currencies like the Australian and Canadian dollar gained strongly in recent weeks after gaining strength in recent weeks, due to a slightly lower oil and other commodity prices.
The pound was at the low end of its recent range at $1.30695.
The overnight two-week low of $42,742 was reported at the moment, and the price of the digital currency was trading around $43,300.