London : – The dollar rose to two-decade highs on Thursday, as investors flocked to the safe-haven currency amid concerns that tighter monetary policy to combat rising inflation would harm the global economy.
Consumer price increases in the U.S. slowed down a lot in April, according to data released on Wednesday. This shows that inflation has definitely reached its peak, even though it is expected to keep going strong.
The dollar benefited as the data supported the Federal Reserve’s forecast for future aggressive interest rate hikes, and investors were concerned that central bank tightening would stifle global economic growth.
Asian equities fell to a nearly two-year low, European stocks fell, and oil prices fell by 2%.
Against this background, the dollar index, which gauges the greenback’s strength against a basket of six currencies, climbed 0.4 percent to 104.44, its best since December 2002.
Even though more and more people think that rates will go up in July, the euro stayed weak because people were worried that the crisis in Ukraine and rising energy prices could push the eurozone into a recession later this year.
“The market had already priced this, but we can now have a high degree of confidence that the ECB will increase in July,” analysts at MUFG said.
The euro fell 0.5 percent to $1.0463 after hitting a low of $1.044 in January 2017.
“The risk sentiment worsened further owing to the dismal news on China’s COVID issue,” Mizuho analysts noted. “Two more illnesses were reported in Shanghai, which pushed back the timetable for lifting the lockdown.”
Shanghai officials scanned the city on Thursday for its final COVID-19 instances to pave the path for a departure from a harsh six-week lockdown. China’s yuan plummeted as low as 6.8150 per dollar, its lowest since September 2020, and was last down 0.7 percent at 6.8125.
The yen rose 1% against the dollar, but it was still close to its lowest level since April 2002, as hawkish Federal Reserve rhetoric continued to weigh on the Japanese currency.
A Bank of Japan policymaker said it was improper to adjust monetary policy to manage exchange rates, dismissing the concept of countering significant yen declines with interest rate rises.
The price of Bitcoin meanwhile, plunged to its lowest in 16 months on Thursday, spurring a rush out of risk assets, such as IT stocks, while the collapse of TerraUSD, a so-called stablecoin, emphasized the pressure on cryptocurrency markets.
Bitcoin, the world’s biggest cryptocurrency, plummeted 3 percent to $27,584, after touching its lowest since December 2020. It has lost a third of its value in the previous eight sessions.
