U.S. dollar posts largest weekly gain in one month on hawkish Fed messages

The U.S. dollar index on Friday posted its largest weekly percentage gain in a month, supported by the prospect of a more aggressive pace of Federal Reserve tightening to curb soaring inflation.

The index also advanced to 100 for the first time in nearly two years. It rose as high as 100.19, its highest since May 2020. It was last little changed on the day at 99.822, and up 1.3% on the week.

The greenback gained ground against a basket of six currencies over the past month, particularly versus the euro, which has been pressured by investor concerns about the economic costs of war in Ukraine and a potentially nail-biting presidential election in France.

Jonas Goltermann, senior markets economist at Capital Economics, said that “the Fed‘s hawkish message on quantitative tightening, renewed sanction risks in Europe and the polling shift in favor of far-right candidate Marine Le Pen ahead of France’s presidential election has put pressure on risk sentiment, especially in Europe.”

This week‘s release of the minutes of the Fed’s March meeting showed “many” participants were prepared to raise rates in 50-basis-point increments in coming months.

On the other side of the dollars rally, the euro dropped to a one-month low of $1.0837. It last changed hands at $1.0853, down 0.3% on the day. The euro has fallen in seven straight sessions.

Meeting minutes from the European Central Bank published on Thursday suggested its policymakers are keen to act to combat inflation, but the euro zone has so far taken a more cautious tack than other central banks, weakening the euro.

“ECB minutes presented little in contrast to recent comments by policymakers, though the sense is that the bank is merely awaiting data over the coming months showing the impact of higher energy prices and the war in Ukraine to decide when to hike first – whether it‘s in Q3 or Q4,” wrote Shaun Osborne, chief FX strategist, at Scotiabank in Toronto, in a research note. “In either scenario, we don’t anticipate more than 50 basis points in tightening from the ECB this year, which is only as much as the Fed is set to roll out in one meeting, next month.”

A tightening election race in France between President Emmanuel Macron and far-right candidate Le Pen has added pressure on the euro, raising investor concerns about the future direction of the euro zones second-biggest economy. Macron is still ahead in polls.

The dollar rose against the Japanese yen, hitting 124.67 yen, its highest in over a week and approaching last months near seven-year high of 125.1. It was last up 0.3% at 124.355 and 1.5% higher on the week.

The yen has steadied this month after tumbling in March, but remains under pressure as the U.S. raises interest rates and the Bank of Japan intervenes in the bond market to keep rates low.

Sterling lost ground versus the dollar, and was last down 0.3% at $1.3035.

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Currency bid prices at 3:33PM (1933 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 99.8130 99.8660 -0.04% 4.338% +100.1900 +99.7430

Euro/Dollar $1.0876 $1.0881 -0.04% -4.32% +$1.0892 +$1.0837

Dollar/Yen 124.3450 123.9750 +0.31% +8.03% +124.6700 +123.6600

Euro/Yen 135.25 134.86 +0.29% +3.78% +135.3600 +134.3600

Dollar/Swiss 0.9338 0.9341 -0.01% +2.39% +0.9374 +0.9329

Sterling/Dollar $1.3036 $1.3074 -0.29% -3.61% +$1.3087 +$1.2983

Dollar/Canadian 1.2568 1.2596 -0.21% -0.59% +1.2619 +1.2567

Aussie/Dollar $0.7459 $0.7479 -0.25% +2.63% +$0.7492 +$0.7427

Euro/Swiss 1.0154 1.0163 -0.09% -2.07% +1.0179 +1.0140

Euro/Sterling 0.8341 0.8319 +0.26% -0.70% +0.8362 +0.8308

NZ $0.6846 $0.6892 -0.67% +0.02% +$0.6892 +$0.6824

Dollar/Dollar

Dollar/Norway 8.6940 8.8085 -1.25% -1.27% +8.8235 +8.6910

Euro/Norway 9.4575 9.5779 -1.26% -5.55% +9.5856 +9.4348

Dollar/Sweden 9.4365 9.4602 -0.17% +4.64% +9.4938 +9.4311

Euro/Sweden 10.2691 10.2868 -0.17% +0.31% +10.3099 +10.2545

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Iain Withers in London and Alun John in Hong Kong; Editing by Bradley Perrett, Chizu Nomiyama, Will Dunham and John Stonestreet)