Tom Westbrook

SYDNEY, (Reuters) – The dollar was at its highest level against the sterling and euro this week, while the yen suffered its worst month in a row, following the most extreme U.S. inflation readings in a generation, which fueled bets about rate increases.

After the 6.2% headline U.S. CPI overnight, the euro fell 1% to $1.1476, and then through significant support it dropped to $1.1476, which was its lowest level since July 2020. This level was held early in Asia and it has no chart support beyond $1.12.

Sterling fell 1.2% to $1.3401, the lowest level since December 2020. The yen lost 0.8% and reversed gains of a week in just a few hours, dropping to 114.00 dollars. [GBP/]

The broad rise of the dollar also had a negative impact on emerging market currencies. MSCI’s EM currencies index saw its sharpest decline in two months, while U.S. Treasury yields surged.

According to Ray Attrill, National Australia Bank’s Head of FX Strategy, the rate movements, particularly at the short end, indicate that traders think the Federal Reserve may raise interest rates if the prices continue rising.

He said that the market was still proving to Fed officials that high inflation will not be allowed to continue indefinitely. Investors might be tempted to exit the market if the move is higher than 95.

It’s a high technical level and we need to break it down so that there are more people who throw in the towel. It has reached 94.905.

According to U.S. data, rents rose along with price increases, which may lead to wage pressure, which will both prolong and increase the inflationary pulse of the pandemic.

This is why the differences between yields of five years in the U.S. and those at the same tenors in Japan or Germany are the widest since 2020. [US/]

The Australian and New Zealand dollar fell against Wednesday’s wide rise in the dollar, but found support around one month ago as investors believe rates are rising to combat inflation in Antipodes. [AUD/]

The steady at $0.7331 Asia and at $0.7065 in the Americas.

Australian labor data will be available at 0030 GMT. Analysts say however that the information won’t be easy to understand as only a portion of the survey period covers the opening of major cities after being closed due to pandemic-imposed restrictions.

Additional dollar gains are likely to depend on clues regarding the Fed’s next moves as well on whether or not the Fed puts more weight on the mood after the inflation jump. This also stimulated selling in the stock markets.

“From FX perspective, we are at a standoff,” declared Deutsche Bank (DE:) strategist Alan Ruskin.

The classic dilemma with the dollar is that if Fed doesn’t react to high inflation, it is USD negative. Conversely, if Fed tightens it is USD positively. The dollar currently is stuck in between both these worlds.

British growth data are due to be released later in the afternoon.

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Exchange bid prices from 0004 GMT

Description: RIC U.S. Last Close Pct. Change YTD High Bid Low

Previous changes

Session

Euro/Dollar

$1.1482 $1.1477 +0.04%-6.02%+1.1487+1.1476

Dollar/Yen

113.9450 113.9000 +0.00%+10.27%+113.9450 +0.0000

Euro/Yen

130.82 130.72 +0.08% (+3.07%) +130.8500+130.7200

Dollar/Swiss

0.9181 0.9182 +0.01% (+3.79%) +0.9182+0.9180

Sterling/Dollar

1.3408 1.3402 +0.05%-1.85% +1.3413.+1.3405

Dollar/Canadian

1.2489 1.2499

Aussie/Dollar

0.7331 0.7326 +0.07% +4.70% +0.7334+0.7325

NZ

Dollar/Dollar 0.7059 0.7058 +0.03% -1.69% +0.7068 +0.7060

All spots

Tokyo’s best spots

Europe’s top spots

Volatilities

Tokyo Forex Market Information from BOJ