Dollar scores two-decade highs

Data on Wednesday showed U.S. consumer price growth hindered sharply in April, indicating that inflation had probably peaked, though it was likely to stay hot.

The data demonstrated the Federal Reserve’s expectations for further aggressive hikes in interest rates.

Asian stocks dropped to an almost two-year low, European shares tumbled, and oil prices declined by 2%.

The dollar index, which gauges the dollar’s strength versus a basket of six currencies, increased 0.4% to 104.45, after hitting its highest after December 2002 at 104.54.

Notwithstanding increasing expectations of a rate hike in July, the euro stayed under pressure on worries that the war in Ukraine and increasing energy prices could tip the eurozone into recession later this year. The euro dropped 0.8% to $1.0427 after striking its lowest after January 2017 at $1.0422. Mizuho analysts flagged that risk sentiment soured further because of the news regarding China’s COVID situation. On Thursday, Shanghai authorities scoured the city for its last COVID-19 cases to empty the way for an exit from a painful six-week lockdown. China’s yuan dropped as low as 6.8292 per dollar, its lowest level since September 2020, down 0.7%.

Meanwhile, other currencies

The Aussie and the kiwi dollar dropped around 1% against the dollar to their lowest after June 2020.

The yen rose 1% versus the dollar as money flowed into safe-haven assets. But it was not far from its softest level after April 2002 as hawkish Federal Reserve rhetoric persisted in weighing on the Japanese currency. A Bank of Japan policymaker said it was improper to change monetary policy to control exchange rates, brushing aside the concept of countering yen falls with rate hikes. Bitcoin meanwhile dropped to its lowest in 16 months on Thursday, conducting a rush out of risk assets, such as tech stocks, while the collapse of TerraUSD, a so-called stablecoin, underscored the pressure on cryptocurrency markets. Bitcoin, the world’s biggest cryptocurrency, increased 1% to $28,797 after hitting its lowest since December 2020. It has failed a third of its value in the last eight sessions.