The dollar soared against most major currencies today. However, the euro slumped 0.14% to US$1.072. The common currency shot up to a 10-month high of $1,103 on February 2. But he’s had trouble staying strong ever since.
New data on Wednesday showed high inflation at the US Federal Reserve, officials commented afterward on monetary policy. US Consumer Price Index (CPI) inflation reportedly spiked in January. Overall, it gained 0.5%, as analysts had expected. That’s partly due to higher food and rent costs. In addition, prices shot up 6.4% year-on-year. Although the inflation figure is lower compared to the 6.5% reached in December, it is still higher than economists’ expectations of 6.2%.
Jane Foley, Rabobank’s director of currency strategy, noted that the rise in the euro is related to the CPI data. Recent comments from Fed officials also weighed on the currency. Traders are now expecting the Federal Reserve to continue raising interest rates, peaking higher than they were contemplating a week ago.
The US dollar index rose 0.25% on Wednesday. It changed hands at 103.51 today after ending the previous session unchanged.
How is the Japanese yen doing?
The yen plunged 0.2%, finally trading at 133.34 per USD. However, it collapsed to a six-week low at 133.44 early in the session. The strength of the dollar weighs on the Japanese currency.
New York Fed President John Williams stated that with the labor market strengthening, there is a possibility that inflation will remain higher in the United States for longer than expected. That could force the central bank to raise rates.
According to economists at Deutsche Bank, the agency could raise rates by as much as 5.6%. They previously forecast a peak of 5.1%, but that changed with the inflation report. The bank’s chief US economist, Matthew Luzzetti, said inflation was likely to remain too high in the coming months.
Meanwhile, the British pound fell 0.79% to $1,208 on Wednesday. The data showed that British inflation fell more than analysts had expected. In January, it fell to 10.1%. This was good news for the Bank of England as it could moderate its rate hike.
On Wednesday, the Australian dollar fell 1.2%, trading at $0.69. Australia’s central bank chief Philip Lowe announced the country needed to raise rates further. China’s onshore yuan was also trading in the red. It sank to a more than a month low at $6.8498. The coin traded at $6,839 at last.
Some traders focused on Scottish First Minister Nicola Sturgeon. She said that she was contemplating resigning. Sturgeon has been doing this job for eight years. So this change will probably influence the country’s currency.
What about emerging market currencies?
On Wednesday, most of Asia’s emerging currencies slumped to their lowest level in more than a month. The firm dollar weighed on them. Consequently, the Malaysian ringgit fell 0.8% today. The currency reached its weakest point since January 9. At the same time, the Thai baht fell 0.7%, also reaching its lowest point since January 12.
Meanwhile, the Indian rupee declined 0.2%. Like its peers, the coin ended at its lowest level in over a month. According to Fed officials, the central bank may need to continue gradually raising interest rates to curb skyrocketing inflation. Investors have priced in a 25 basis point rate hike in March.
Clifford Bennett, chief economist at ACY Securities, pointed out that the Federal Reserve made a mistake by moving to 25bp hikes too early. Such an approach will only prolong the agency’s current tightening cycle. Also, as the Federal Reserve continues to raise rates, it will hit the nerves of businesses, consumers, and investments. Some analysts also fear it could cause an economic downturn.
In Asia, stocks fell today, along with most currencies. South Korean shares fell 1.6%, suffering the most substantial losses. Taiwanese stocks also plunged 1.4%.
On Tuesday, Singapore’s finance minister Lawrence Wong said there could be a slight shortfall of 0.1% of gross domestic product for this year’s budget. According to him, the government would use it to help households ease the pressures of rising cost of living.
Singapore’s economy is struggling this year due to slowing global growth, as well as inflation and higher interest rates. Today, the Singapore dollar fell 0.4%, while shares fell 1.2%.
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