Wayne Cole

SYDNEY (Reuters – On Thursday, the dollar was at its highest point in over two decades as Europe’s energy crisis hammered the euro. The yen suffered from expectations that Japan’s Bank of Japan would maintain its super-easy policies.

When compared to a basket currency, it had reached a five year high of 103.28. An additional push beyond 103.82 would bring the value up to levels not seen since 2002.

Euro was stuck at $1.0553 after hitting its lowest point in five years, $1.0515. In April, the single currency fell 4.6% and now faces its worst month since 2015.

This currency is at risk of falling below huge chart support levels, which range from $1.0500 to $1.0344 in 2017, and a low point from 2017. Breaking the currency would plunge it to levels not seen since 2002, and could lead to a dangerous decline below parity.

This slide will only increase Europe’s economic problems as it increases the price of energy in dollars. It also raises costs for Russia’s decision to reduce its ties with Poland and Bulgaria.

Helima Croft (head of global commodity research, RBC Capital Markets), stated that “this appears to be an overt act in energy war,”

The question is now whether or not the ban will be extended to major importers. This could soon become an egregious test of European support for Ukraine, given the rising energy prices and increasing recession risk.

This could make it less likely that the European Central Bank will tighten as aggressively as the Federal Reserve, and leave it behind.

According to the markets, the Fed is expected to raise rates by 50 basis point in May and June as well as July. The goal being for the Fed’s rate of 3.0% before the year ends. The ECB could reach 0.5% before Christmas.

Bank of Japan (BOJ), while not close to tightening, continues to purchase bonds for near-zero yields.

It is likely that the central bank will hold its policy meeting Thursday.

A divergent outlook on rates means that the dollar has climbed on the Japanese yen again to 128.44, which is within striking distance of the 20-year high of 129.43.

Data on the U.S. Gross Domestic Product due Thursday will provide one potential weakness for the dollar.

Market forecasts are for 1.1% growth, but there’s a downside to this after the U.S. deficit reached a new record. This implied that net exports would be severely affected.

NatWest Markets’ analysts fear that the GDP contracted 1.3% per year in the quarter. A negative reading may temporarily dampen dollar’s rise, even if the result is positive.