Peter Nurse

Investing.com: The U.S. Dollar soared to an almost two-decade-high in European early trade on Friday. This was due to traders looking for a safe haven amid worries about global economic growth and seeking yield. 

After rising by a fifth consecutive week, the, which monitors the greenback in relation to six currencies, rose 0.5% at 02:50 ET (0650 GMT).

Economic growth has been slowed by the war in Ukraine, and more restrictive lockdowns in Beijing and Shanghai against COVID-19 have created uncertainty in Europe and Asia.

This week sees the release of Germany’s and preliminary first quarter data from the U.K., and these are likely to point to slowing growth in two of Europe’s largest economies.

China’s data from Monday showed that the country experienced a slowdown in growth in April. It grew 3.9% in April compared to March’s 14.7%. This was the lowest growth rate since June 2020.

Data released Friday revealed that the U.S. grew 428,000 in April, which was higher than anticipated. Businesses are scrambling for workers in order to meet the rising demand.

fell 0.4% to 1.0509, marginally above its recent low of 1.0469, rose 0.4% to 131.12, at a two-decade high, while fell 0.5% to 1.2277, at a new 22-month low, despite the Bank of England’s decision to lift on Thursday for the fourth meeting in a row.

“One of the big differences between the Fed and the BoE is that U.S. inflation is more domestically generated from tight labor markets and the huge fiscal stimulus seen over recent years,” said analysts at ING, in a note.

The U.S. Federal Reserve last week a 50 basis point hike, its largest increase since 2000, and the yield on benchmark 10-year U.S. government bonds has continued to climb ahead of Wednesday’s figures on fears of an upside surprise.

Futures market prices are pegged at a 75% probability of a Fed rate hike of 75 bps in June, and more than 200 bps tightening before year’s end.

European Central Bank policymakers have begun to openly discuss raising rates. Robert Holzmann, the Austrian governor of the Central Bank, stated that it should hike interest rates at least three times this fiscal year in an interview with the newspaper. This was to counter inflation.

However, “given that around 90bp of ECB tightening is already priced by year-end, we do not think a further round of ECB hawkish talk is enough to provide much support to EUR/USD,” added ING.

“Instead, the Fed story and weak growth in Europe and China are likely to see EUR/USD trading on the soft side of a 1.0500-1.0650 range, with risks skewed towards a break down to the 2016 lows of 1.0350.”

Elsewhere, rose 0.8% to 6.7200, at a fresh 18-month low after the country’s trade data and with Covid-19 lockdowns remaining in place, while fell 1.1% to 0.7000, just off January’s low.