The dollar was down on Friday morning in Asia but was headed towards its best week in seven months. The U.S. currency broke through key levels against the euro after investors increased bets on multiple U.S. interest rate hikes in 2022.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies edged down 0.12% to 97.127 by 10:12 PM ET (3:12 AM GMT). The index passed the 97-mark for the first time since July 2020.
The USD/JPY pair inched up 0.07% to 115.41, with Japans Tokyo core consumer price index growing 0.2% year-on-year in January.
The AUD/USD pair was up 0.21% to 0.7046, with Australias producer price index growing 1.3% quarter-on-quarter and 3.7% year-on-year in the fourth quarter of 2021. The NZD/USD pair inched up 0.03% to 0.6583.
The USD/CNY pair edged down 0.14% to 6.3593 while the GBP/USD pair edged up 0.13% to 1.3403.
The euro fell almost 0.9% to a 20-month low of $1.1131 during the previous session, while the dollar gained 1.7% on the euro and 2% or more on the riskier Antipodean currencies.
The U.S. Federal Reserve took a hawkish stance as it handed down its policy decision on Wednesday, driving bets on five or more interest rate hikes in 2022. Some investors even expect up to six hikes.
Sentiment was also bolstered by the U.S. GDP growing a better-than-expected 6.9% quarter-on-quarter in the fourth quarter of 2021.
“So much for all those analysts rushing to conclude that the dollar rally was done, following the early-year divergence between rising U.S. interest rates and the falling dollar,” National Australia Bank head of FX strategy Ray Attrill told Reuters.
Meanwhile, the prospect of the Peoples Bank of China taking the opposite direction to the Fed, made more likely thanks to soft industrial profit growth data earlier in the week, led the dollar to its best session in seven months against the yuan.
Across the Atlantic, the pound was near a one-month low, with the Bank of England handing down its policy decision in the following week. The European Central Bank and the Reserve Bank of Australia will also hand their policies.
However, the dollar's rally is starting to lose steam as economies and central banks globally slowly emerge from COVID-19, according to some investors.
“The dollar is on cycle highs and has further to go as rate differentials and increased levels of market volatility provide support. But this is the last stage of the move,” Societe Generale (OTC:SCGLY) strategist Kit Juckes told Reuters.
“As the global economy emerges from the worst of COVID-19 in 2022, the market focus will shift to monetary policy normalization and growth outside the U.S. and the best currency returns in the second half of 2022 are likely to come from outside the major developed economies.”
