The US dollar moved higher in early European trade on Friday, trading at a two-year high and supported by the prospect of a Federal Reserve rate hike.
The Dollar Index, which measures the greenback against a basket of six other currencies, was up 0.2 percent to 99.920 at 4:05 a.m. ET (0805 GMT), its highest level since May 2020.
The index is up 1.2 percent this week, after the publication of the Fed’s March meeting minutes, which revealed that “many” members were willing to increase interest rates in 50-basis-point increments in the coming months to battle inflation.
“The message from the March Federal Open Market Committee (FOMC) minutes reflects that the Federal Reserve seemed to be quite optimistic about growth and the job market, but that inflation needed to be tackled quickly,” ING analysts said in a note.
“It is apparent that the Fed would have started the cycle with a 50bp increase had it not been for the Ukraine conflict.”
James Bullard, the head of the St. Louis Fed, said Thursday that the central bank should raise the federal funds rate by three percentage points this year.
“I’d want to get there in the second half of this year…We have to move, “Bullard said, referring to inflation running at treble the Federal Reserve’s 2% objective. “We’re talking about more significant steps than we’ve taken in a long time.”
One thing that made EUR/USD fall 0.2% was that the European Union agreed to put an embargo on Russian coal starting in August as a response to alleged Russian army crimes against Ukraine civilians, which Moscow denies.
Fears of a new Russian attack in eastern Ukraine are growing. Ukraine’s Foreign Minister Dmytro Kuleba asked Western countries to help his country get more modern weapons during a meeting with NATO peers in Brussels on Thursday.
After Russia invaded, policymakers at the European Central Bank’s March meeting said they wanted to cut back on stimulus. But the prospect of a euro-area recession afterward might make the central bank stop.
Elsewhere, USD/JPY increased 0.1 percent to 124.09, its strongest level in almost a week and close to last month’s near seven-year high of 125.10.
GBP/USD was down 0.2 percent at 1.3043, AUD/USD was down 0.1 percent at 0.7477, and USD/CNY was up 0.1 percent at 6.3626.
