Dollar nears two-decade peaks as problems plague euro, yen

div classBodysc17zpet90 cdBBJodivpBy Wayne Colep

pSYDNEY Reuters – The dollar was nearing heights not seen in two decades on Thursday as the energy crisis in Europe hamstrung the euro, while the yen was undercut by expectations the Bank of Japan would stick to its supereasy policies.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pMeasured against a basket of currencies, the dollar index had reached a fiveyear top of 103.28 and a further push above 103.82 would see it to levels not visited since late 2002.p

pThe euro was pinned at 1.0553, having hit a fiveyear low of 1.0515 on Wednesday. The single currency has fallen 4.6 so far in April and is heading for its worst month since early 2015. p

pThe currency is now perilously close to huge chart support levels stretching from 1.0500 down to a trough from 2017 at 1.0344. A break would take it to depths not seen since 2002 and risk a damaging decline below parity.p

pThe slide only adds to Europe‘s economic troubles as it raises the cost of energy priced in dollars, just as natural gas costs soar on Russia’s move to cut off Poland and Bulgaria.p

p“This appears to be the first overt act of energy warfare,” warned Helima Croft, head of global commodity research at RBC Capital Markets.p

p“The question now is whether the cutoff will extend to other major importers in what could quickly become a stark test of European resolve to support Ukraine in the face of surging energy prices and rising recession risks.”p

pSuch risks could also make the European Central Bank reluctant to tighten aggressively, leaving it lagging far behind the Federal Reserve.p

pMarkets are wagering the Fed will hike by 50 basis points in May, June and July, and ultimately lift rates to around 3.0 by the end of the year. The ECB is seen maybe reaching 0.5 by Christmas.p

pThe Bank of Japan BOJ is not even close to tightening as it doggedly buys bonds to keep yields near zero. p

pThe central bank holds a policy meeting on Thursday and is widely expected to reaffirm its yield guidance, even as it raises the outlook for inflation.p

pThe diverging outlook on rates has seen the dollar resume its climb on the yen to reach 128.44 too be within spitting distance of its recent 20year peak of 129.43.p

pOne possible pot hole for the dollar will be data on U.S. gross domestic product due later Thursday.p

pWhile the market forecast is for growth of 1.1, the risk is to the downside after the U.S. trade deficit blew out to a record and implied a large drag from net exports.p

pAnalysts at NatWest Markets now fear GDP may have actually contracted by an annualised 1.3 in the first quarter. Any negative reading could temper the dollars ascent, if only temporarily.p