Dollar rockets to 16-month highs after hot U.S. inflation

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(corrects milestone in title and first paragraph to 16-month high)

FILE PHOTO: A pack of US five-dollar bills is inspected at the Bureau of Engraving and Printing in Washington March 26, 2015. Businesshala/Gary Cameron//file photo/file photo

LONDON (Businesshala) – The dollar rose to a 16-month high against the euro and other currencies on Thursday, and the yen fell toward a multi-year low, following the warmest US inflation reading in a generation on interest rates. Encouraged bets on the rise.

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Data showed US consumer prices rose last month at the fastest annual pace since 1990, and traders think the Federal Reserve may respond by raising interest rates faster than peers in Europe and Japan. .

The euro was hit as the European Central Bank is seen to be lagging behind in policy tightening. On Thursday, it fell further to $1.1459, the lowest level since July 2020.

Sterling was also down marginally on Thursday at an 11-month low of $1.3388, with better-than-expected GDP data in Britain doing little to support the pound.

The yen extended a sharp reversal of recent gains to 114.15 per dollar – the Japanese currency’s near four-year low of 114.69 reached last month. One month trough was registered in Australian and New Zealand Dollar.

Against a basket of currencies, the dollar rose 0.2% to 95.02, its strongest since July 2020.

Analysts said a sharp rise in US government bond yields, which include the 30-year Treasury’s 1.5%, was behind the dollar’s jump.

“Whether investors will take the EUR-USD decline towards the next support levels around $1.1425 and $1.1380 will be a major test for the FX market today,” UniCredit analysts said.

“However, this test will likely depend on a further increase in the long-term UST (US Treasury) yield and consequently additional spread of yield between the UST and the German Bund.”

After a jump in Treasury yields, which rise when prices fall, the gap between the five-year US yield and yields in Japan and Germany is wider – in Treasury’s favor – than at any time since the start of 2020. In. [US/]

Emerging market currencies also faced broader dollar gains, with MSCI’s EM Currency index falling the sharpest in two months.

A job report in Australia showed an unexpected rise in unemployment.

But softening commodity prices led to a fall in the Australian and New Zealand dollars. The Australian fell 0.4% to a one-month low of $0.7296 and the Kiwi fell 0.4% to $0.7032. [AUD/]

“From a foreign exchange perspective, we are at an impasse,” said Deutsche Bank strategist Alan Ruskin.

“On the dollar we have the classic dilemma – if the Fed won’t respond to high inflation, the dollar is negative; if the Fed tightens, it is the USD positive. Right now the dollar is largely stuck between these two worlds. “

Additional reporting by Tom Westbrook in Sydney, Editing by Timothy Heritage

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