The dollar reached 16 month highs against the euro and other currencies on Thursday, and the yen fell back towards a multi-year low after the hottest U.S. inflation reading in a generation encouraged bets on interest rate hikes.
The Federal Reserve could respond by lifting interest rates faster than in Europe or Japan last month, according to data, traders think it could respond by lifting interest rates faster than in Europe or Japan.
The euro dropped as the European Central Bank is lagging on policy tightening. The price of it went down to $1.1454 on Thursday, its lowest since July 2020.
With relative COVID trends still moving against Europe and a more negative EM China backdrop it is hard to see this relative growth under performance reverse any time soon, said George Saravelos, a strategist at Deutsche Bank, adding the euro could weaken as far as $1.12.
The pound was also down at a new 11 month low of $1.3365. The data showing Britain's economy lagging rivals in the July- September period did little to help.
The Japanese currency's four-year low of 114.69 reached last month, which led to a sharp reversal of recent gains to fall to 114.15 per dollar. The Australian and New Zealand dollars recorded one-month troughs.
The dollar went up to its high as high as 95.101, its strongest since July 2020.
The U.S. dollar has gained from the repricing of Fed policy expectations from the previous week in which it had already benefitted from the G 10 central banks pushing back against rate increase expectations outside of the U.S., said Lee Hardman, currency analyst at MUFG.
The 30 year Treasury yield has risen sharply, including the 30 year Treasury yield passing 1.5%, according to the U.S. government bond yield.
After the surge in Treasury yields which rise when bond prices fall, the difference between five-year U.S. yields and yields in a same tenor in Japan and Germany is more wide in favour of Treasuries than at any time since early 2020.
The dollar's index suffered its sharpest drop in two months, with MSCI's EM currencies index suffering its sharpest drop in two months.
The Australian and New Zealand dollars slipped, pushed lower by the jump in the U.S. dollar. The Kiwi dropped by half a percent to a one-month low of $0.7287, while the Aussie fell by half a percent to a one-month low of $0.7287.
Turkey's lira went to a new record low of 9.97 to the dollar after the U.S. inflation reading and as expectations grow Turkey will cut rates again soon.