Euro rose Friday. How are USD and other currencies faring?

The euro climbed higher on Friday. However, traders’ worries about a potential economic slowdown kept the currency in a tight range. On the other hand, the dollar lowered as market players priced in expected monetary tightening by the Federal Reserve. ING analysts noted that the combination of high energy prices, lingering Russia-related risks, and Fed-ECB policy divergence still points to a weaker EUR/USD pair. Unicredit analysts also think that EUR-USD will remain stuck at around 1.10. While PMI surveys came better-than-expected across the eurozone for March, it’s not sufficient to induce buying interest.

Meanwhile, German business morale deteriorated during this month due to worsening supply chain issues. As a survey showed on Friday, high petrol prices and driver shortages caused the latter. Roman Ziruk, the market analyst at Ebury, thinks that hawkish remarks from the European Central Bank have supported the common currency.

On Thursday, ECB board member Isabel Schnabel said that the ECB would reconsider plans to end its bond-buying stimulus program this summer only if the eurozone economy experiences a deep recession. However, the central bank’s officials have played down recession risks recently. On Friday, the common currency jumped by 0.15% to $1.10.

There was some renewed optimism over the prospect of the end of the conflict in Ukraine. That helped improve financial market conditions and weaken the greenback – noted Derek Halpenny, the head of research for global markets at MUFG.

President Volodymyr Zelensky announced that Ukrainians need to achieve peace and halt Russian bombardments. Ukrainian troops are now recapturing towns east of Kyiv, while Russian forces are falling back.

How is the U.S. currency faring?

The U.S. dollar index dropped by 0.1% to 98.632 against the basket of six peers today. According to BofA analysts, markets had already priced in the subsequent likely interest rate hikes by the Federal Reserve to happen more rapidly than during the previous tightening cycle between 2015 and 2018.

Forex markets are betting the agency will raise its benchmark overnight interest rate by 190 basis points by the end of 2022, including an 80% chance of a half-percentage-point jump at the May 3-4 policy meeting.

On Friday, the Japanese yen rebounded versus the dollar, gaining 0.6% at 121.6. Overnight, the currency plunged to 122.44, the lowest level since December 2015, due to the difference in rate hike expectations between the Bank of Japan and other major central banks.

Analysts think the BOJ essentially provided a bullish signal as it refrained from stepping into the market Friday morning. At the same time, the 10-year government bond yield soared above the level at which the bank had offered to buy an unlimited amount in February. Moreover, Governor Haruhiko Kuroda announced that a weak yen benefits the economy.

Despite that, Ebury’s Ziruk noted that they don’t expect further depreciation of the yen against the greenback. At 115, the currency is fairly valued considering the central bank’s dovish stance.

The Norwegian crown plummeted by 0.2% against the euro today. The currency had soared during the previous day as the central bank hiked its benchmark interest rate. It also plans to hike at a faster pace than previously intended.

What about the EM currencies?

On Friday, the Indian rupee and the Thai baht gained the most among Asian currencies. A weaker U.S. dollar supported the currencies as crude prices dropped after the United States and allies considered releasing oil reserves.

Despite those gains, most regional currencies were still set to post decreases for the week due to the growing likelihood of aggressive U.S. interest rate hikes. The Russia-Ukraine conflict also made investors risk-averse.

This week, traders were also wary of oil-importing nations like Thailand and India. These countries could suffer if Western sanctions were to hit Russian oil exports more severely. Still, oil prices were set to mark their first successful week in the last three.

On Friday, the Indian rupee surged forward by 0.3%. At the same time, the baht rallied by almost 0.5% on Friday. However, both the currencies seem set to post a loss of 0.5% for the week. The baht is eyeing its fifth consecutive weekly loss in a row.

Analysts at Barclays noted that the effects of higher oil prices on imports, along with slowing global growth on exports, will become visible over the coming months. They should lead to larger trade deficits in Thailand.