By Karen Brettell
NEW YORK (Reuters) – The dollar slipped from 20-year highs against a basket of currencies on Friday but remained on track for the best month in seven years as concerns about the global economy and a hawkish Federal Reserve bolstered demand for the greenback.
The dollar hit a 20-year high against the yen on Thursday, as the Japanese currency was hurt by dovish Bank of Japan policy. It also hit a five-year high against the euro, which has dropped sharply since Russia’s invasion of Ukraine, with investors concerned about Europe’s energy security, inflation and growth.
â€œThe broad story is obviously weâ€™ve seen some broad-based dollar strength,â€ said Vassili Serebriakov, an FX strategist at UBS in New York. â€œThere is a general story, which has more to do with concerns about the global cycle and that helps the dollar through risk aversion, but then there are some idiosyncratic stories like dollar/yen.â€
Concerns about global growth have increased as China enacts lockdowns in a bid so stop the spread of COVID-19.
China’s capital Beijing closed more businesses and residential compounds on Friday, with authorities ramping up contact tracing to contain a COVID-19 outbreak, while resentment at the month-long lockdown in Shanghai grew.
The dollar index against a basket of currencies was last 103.28, after reaching 103.93 on Thursday, which was the highest since Dec. 2002. It is on track for a 5.1% monthly gain, the largest since Jan. 2015.
The yen was last 130.15, after reaching 131.24 on Thursday, the weakest since April 2002. The dollar has gained 7% against the Japanese currency this month, and is on track for the best month since Nov. 2016.
The euro was $1.0523, after dropping to $1.0470 on Thursday, the lowest since Jan. 2017. The single currency is on track to lose 4.90% this month, the most since Jan. 2015.
The greenback pared some losses after data on Friday showed that U.S. consumer spending increased more than expected in March amid strong demand for services, while monthly inflation surged by the most since 2005.
The Fed is expected to raise rates by 50 basis points and announce plans to reduce its $9 trillion balance sheet when it concludes its two-day meeting on Wednesday as it tackles soaring inflation.
Fed funds futures traders are pricing for the fed funds rate to rise to 2.86% by year-end, from 0.33% now.
Still, some analysts note that markets have already priced in aggressive Fed tightening, which could dampen future Treasury yield increases and dollar gains.
“We already have huge degrees of tightening priced into the dollar curve â€“ Iâ€™m not sure we will be able to meet that scale or scope of Fed tightening,” said Jeremy Stretch, head of G10 FX strategy at CIBC.
The British pound rose to $1.2537, after dropping to $1.2410 on Thursday, the weakest since July 2020. It is on track for a 4.5% loss this month, the largest since Oct. 2016. [GBP/]
Currency bid prices at 9:52AM (1352 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 103.2800 103.6300 -0.33% 7.962% +103.6300 +102.8100
Euro/Dollar $1.0523 $1.0500 +0.22% -7.44% +$1.0593 +$1.0492
Dollar/Yen 130.1500 130.7950 -0.49% +13.06% +130.9450 +129.7700
Euro/Yen 136.95 137.33 -0.28% +5.09% +137.9800 +136.9500
Dollar/Swiss 0.9712 0.9719 -0.08% +6.46% +0.9736 +0.9681
Sterling/Dollar $1.2537 $1.2463 +0.62% -7.28% +$1.2585 +$1.2455
Dollar/Canadian 1.2746 1.2809 -0.48% +0.82% +1.2812 +1.2720
Aussie/Dollar $0.7151 $0.7098 +0.78% -1.59% +$0.7179 +$0.7090
Euro/Swiss 1.0218 1.0204 +0.14% -1.46% +1.0266 +1.0202
Euro/Sterling 0.8391 0.8426 -0.42% -0.10% +0.8432 +0.8385
NZ $0.6520 $0.6489 +0.50% -4.72% +$0.6543 +$0.6486
Dollar/Norway 9.2905 9.4165 -1.31% +5.49% +9.4125 +9.2515
Euro/Norway 9.7770 9.8865 -1.11% -2.36% +9.8950 +9.7504
Dollar/Sweden 9.7939 9.8754 -0.54% +8.61% +9.8895 +9.7364
Euro/Sweden 10.3061 10.3616 -0.54% +0.70% +10.3863 +10.2877
(Additional reporting by Elizabeth Howcroft in London; Editing by Nick Zieminski)