Dollar hovers near two-decade high

May 12, 2022: The U.S. dollar held near a two-decade high on Wednesday after U.S. inflation moderated less than markets had expected, keeping the Federal Reserve on course to tighten policy aggressively.

The dollar index, which measures the greenback against six major peers, slipped about 0.1% to 103.92 on Thursday but was still close to the 104.19 level reached at the start of the week for the first time since late 2002.

The consumer price index climbed 8.3% on an annual basis in April, easing from 8.5% in March but outstripping the 8.1% estimate of economists.

The data suggested inflation may have peaked, but was unlikely to cool quickly and derail the Fed's current monetary policy plans.

The market is fully priced for at least a half percentage point increase to the policy rate at each of the next two Fed decisions, on June 15 and July 27, according to the CME FedWatch Tool.

"The stronger-than-expected U.S. inflation print heightened concerns over the need for the Fed to accelerate its policy tightening path," Rodrigo Catril, senior currency strategist at National Australia Bank, wrote in a client note.

The May CPI data comes five days before the June Fed meeting, and another "shocker" would make a 75 basis-point hike then a "strong possibility," he said.

The euro rose 0.14% to $1.0526, pulling away a bit from the more than five-year low at $1.04695 plumbed at the end of last month. The single currency got a lift as the European Central Bank overnight firmed up expectations that it will raise its policy interest rate in July for the first time in more than a decade.

The yen continued to garner support from an easing in long-term Treasury yields from a multi-year peak above 3.2% at the start of the week.

Japan's currency added about 0.1% to 129.835 per dollar, pulling further away from the more than two-decade low of 131.35 reached Monday, as the 10-year Treasury yield retreated to an almost two-week low of 2.862% in Tokyo trading on Thursday.

The British pound languished as Brexit headlines returned, with the attorney-general for England and Wales advising the government that it would be within its legal rights to scrap large parts of the Northern Ireland protocol, according to the Times newspaper.

Sterling dipped to $1.2230 on Thursday for the first time in almost two years.

In cryptocurrencies, bitcoin attempted to retake $30,000 after plunging below that level on Wednesday for the first time since July. It rose as high as $30,090.70 on Friday before last changing hands about flat around $29,185. It dipped as low as $27,757.77 in the previous session.

Reuters