By Alun John

HONG KONG (Reuters – On Friday the dollar touched a 2-week high on the Euro, just ahead of new inflation data, which will guide the Federal Reserve’s tightening policy, and after the European Central Bank declared that its rate-hike campaign would begin next month.

The core U.S. consumer price growth will slow by only a fraction according to data released later in this global day. This would give some comfort to people who believed that decades-high inflation peaked in March, and that April’s pullback wasn’t a temporary one.

The Fed could have some leeway to increase rates more slowly in later years as it attempts to control inflation and avoid putting the country in recession.

Markets expect that the Fed will announce next week the second of three 50-basis point interest rate increases. This has helped to boost the dollar’s value in the recent months.

Following a 0.7% overnight rise, the, which tracks the greenback relative to six peers, stood steady at 103.3.

The stock has risen 1.1% in the past week. This would mark its largest percentage gain since April’s last week.

It appears that the index has negotiated a more determined, hawkish ECB in relative comfort. Analysts at Westpac said that the plans to increase rates by 25bp each in July and September and table potentially higher increments were not more hawkish then expected.

According to analysts, the index appeared to settle into the range 101-105. However, there is room to push the high end of the scale should U.S. CPI data be released and the Fed meeting next week highlight the possibility for higher U.S. yields.

After losing 0.92% against the dollar on Thursday, euro trade touched $1.0611 early Asia trading. This is its lowest level since May 23rd.

According to the central bank of the 19 euro-using countries, it will end quantitative easing in July and then increase interest rates 25 basis points by July 21. Unless the inflation outlook is improved in the interim, the ECB expects a larger rate hike in September.

Also overnight, the euro lost 0.555% against sterling and 0.86% on Japanese yen. This is a drop of seven and a quarter years.

The greenback was unable to gain ground against the yen, which traded at 134.16 USD in Asia early Friday trade, almost at its 20-year lowest.

Like major counterparts, The Bank of Japan has maintained its commitment to keep interest rates low. This resulted in the yen falling to just 135.20, which was reached on Jan. 31, 2002. This would mark the lowest level since Oct 1998.

The Australian dollar, which is highly risk sensitive, sank to $0.709 this week. It was down 1.65% due to declines on equity markets. Sterling fell to $1.2486, also hurt by the drop in equity markets.

It was trading at $29 800 after failing to maintain a breakup beyond $30,000 in the latest attempt. This is the same level it had been trading the last month.