FOREX-Dollar hits two-decade high, shaken investors turn to safe haven
(Adds analyst comments)
By Stefano Rebaudo
LONDON, May 12 (Reuters) – The dollar hit new two-decade highs on Thursday as fears that tighter monetary policies aimed at tackling soaring inflation could hurt the global economy, dampen risk sentiment and push investors into safe-haven currencies.
Data on Wednesday showed U.S. consumer price growth had slowed sharply in April, suggesting inflation was likely to have peaked, although it is likely to remain elevated.
The data confirmed expectations of further aggressive interest rate hikes by the Federal Reserve.
Asian stocks fell to a nearly two-year low, European stocks fell and oil prices fell 2%.
The dollar index, which measures the strength of the greenback against a basket of six currencies, rose 0.4% to 104.45, after hitting its highest since December 2002 at 104.54.
“The US economy remains strong and inflation is still there. We have little reason to believe the data will stop the Fed from raising rates and starting quantitative tightening,” said Kamal Sharma, forex strategist at BofA.
Despite growing expectations of a rate hike in July, the euro remained under pressure on fears that the war in Ukraine and rising energy prices could tip the eurozone into recession later this year.
“The overriding theme is not whether the ECB will raise rates in July, which is already priced in, but what is happening in economic activity and how that will affect the reaction function of central banks,” Sharma added.
The euro fell 0.8% to $1.0427, after hitting its lowest level since January 2017 at $1.0422.
Analysts at Mizuho reported that risk sentiment has worsened further due to news regarding the COVID situation in China.
Shanghai authorities combed through the city on Thursday for its latest COVID-19 cases to pave the way for an exit from a painful six-week lockdown.
The Chinese yuan fell to 6.8292 per dollar, its lowest level since September 2020, down 0.7%.
“Until we see major Chinese stimulus or a Covid policy change (very unlikely), uncertainty over whether this USD/CNY rally will stop will keep commodity currencies and emerging markets generally under pressure,” ING analysts said.
The Aussie and Kiwi dollar fell about 1% against the greenback to their lowest since June 2020.
The yen rose 1% against the dollar as money flowed into safe havens. But it was not far from its lowest level since April 2002 as hawkish rhetoric from the Federal Reserve continued to weigh on the Japanese currency.
A Bank of Japan policymaker said changing monetary policy to control exchange rates was inappropriate, dismissing the idea of countering the yen’s fall with rate hikes.
Meanwhile, Bitcoin fell to a 16-month low on Thursday, leading to a rush into risky assets, such as tech stocks, while the collapse of TerraUSD, a so-called stablecoin, underscored the pressure. in the cryptocurrency markets.
Bitcoin, the world’s largest cryptocurrency, rose 1% to $28,797, after hitting its lowest level since December 2020. It has lost a third of its value in the past eight sessions.
(Reporting by Stefano Rebaudo; Editing by Chizu Nomiyama)