By Alun John

HONG KONG, (Reuters) – The dollar reached a five-year high on the yen after a strong U.S. inflation report. However, the euro was unable to keep its ground as a hawkish turn by the European Central Bank was countered by the growth risks arising from the Ukraine crisis.

In early trading, the greenback increased as much as 116.55 Japanese yen. This is its highest point since January 2017. Dollar is currently up 1.5% against the yen in early trade, marking its highest weekly gain ever since October.

“Dollar-yen seems to be inexorably a yield play. “It seems that the contrast between an ON-HOLD BOJ and Fed ready for liftoff are just too tempting to ignore,” stated Sean Callow of Westpac, senior currency strategist.

The Federal Reserve and Bank of Japan will meet next week. While the Fed seems certain to raise rates above their current pandemic lows, the BOJ remains an anomaly and is expected to maintain a cautious stance on monetary policies, which could weigh on the yen.

The U.S. Consumer Prices jumped by 7.9% over the previous year in February. That’s the biggest annual increase since the 1970s, long before the rise in commodities prices resulting from the conflict in Ukraine.

CPI data “basically suggests that the Fed should raise rates this month but also implies that they will continue to do so.” [with hikes]At least for the initial time,” Rodrigo Catrill of National Bank of Australia said.

At $1.1005, the euro was not much changed since its last change. Although it finished the Thursday a little lower by 0.8%, over the course of the day it rose to as high $1.112 and fell as low at $1.0975.

Catrill stated that although the ECB’s more hawkish messages had temporarily increased the euro, it was short-lived. This shows you that other dynamic are taking precedence over any thoughts about the ECB’s actions.

On Thursday the ECB announced that they will end the stimulus phase in the third trimester, which opens up the possibility for an increase in interest rates before the year 2022. The move is intended to curb rising inflation.

They also moderately downgraded their growth forecasts this year and next and increased inflation expectations as Christine Lagarde, President of the ECB, said that conflict was a “watershed in Europe”, which would both curb growth and increase inflation.

The talks between Russia and Ukraine on Thursday did not make any progress toward ending the war, which is currently in its third week.

Sterling has been affected as well by war. It was trading at $1.3093, close to its 16-month low.

On Friday, New Zealand and Australian dollars lost ground after a storming rally triggered by higher commodity prices.

Both were $0.7236 and $0.6851.

The week’s close was at $38,500. This is despite volatile days when prices went round-trip in reaction to an executive order by U.S. President Joe Biden that required the government prepare reports about the future of money.