FOREX-Dollar Approaches 20-Year Highs, Euro Soars on Prospect of ECB Rate Hike

The dollar dipped versus key rivals on Friday, but remained near 20-year highs, while the euro soared as European Central Bank policymakers predicted a return to positive rates this year. In recent weeks, the safe-haven greenback has risen sharply in reaction to global recession fears and wagers that the Federal Reserve will tighten monetary policy faster than other central banks to tame inflation. The dollar index, however, lost steam after hitting a new 20-year high of 104.07 earlier in the trading session, and was last down 0.3 percent at 103.29. The drop was partially explained by the euro’s gains, which reached 0.6 percent on the day. At $1.0587, the euro was up 0.5 percent.The single currency was lifted by comments made by French central bank chief Francois Villeroy de Galhau, who said the ECB should raise its deposit rate back into positive territory this year. The ECB has been moving slowly to remove support this year, but record inflation has prompted more members to call for action.

Economists predict a solid 391,000 U.S. jobs were added last month, according to a Reuters poll. The Fed raised rates by half a percentage point on Wednesday – the biggest jump in 22 years – but the dollar temporarily cooled on Fed Chair Jerome Powell’s comments that policymakers were not actively considering 75 basis point hikes in the future. Sterling was broadly flat after earlier dropping below $1.23 for the first time in nearly two years, a day after the Bank of England sent a stark warning that Britain risks a double-whammy of a recession and inflation above 10%. The BoE also joined the Fed in raising rates, hiking them by a quarter of a percentage point to 1%. The yen fell back slightly against the dollar, down 0.1% to 130.35 yen per dollar. In cryptocurrencies, bitcoin weakened 2% to trade just below $36,000.

ECB policymaker Joachim Nagel, who heads Germany’s Bundesbank, also indicated support for a move sooner rather than later in separate comments on Friday, saying the ECB’s window for raising rates was slowly closing. “It looks like the ECB is preparing the ground now to deliver a rate rise in July, which looks increasingly like the base case scenario. It doesn’t look like it will be one and done this year either,” said Lee Hardman, currency analyst at MUFG. “The inflation pressure is too much for central banks to look through, even if risks to growth are heavily weighted to the downside.” European stocks are heading for their worst week in two months on the deteriorating economic outlook, following a rout on Wall Street. The U.S. currency has stood tall on expectations the Federal Reserve will swiftly act to combat inflation. Closely-watched U.S. jobs report due later on Friday could strengthen the case for aggressive tightening, analysts said.

News Summary:

• FOREX-Dollar Approaches 20-Year Highs, Euro Soars on Prospect of ECB Rate Hike
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