Dollar plunges as traders eye further ECB hikes and US inflation data

US dollar and euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

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SINGAPORE, Sept 9 (Reuters) – The dollar retreated on Friday after recent spikes in Asia, as a hawkish rate hike from the European Central Bank lifted the euro and investors turned to data from US inflation early next week.

Profit taking after a strong extension of the dollar’s long rally also set in and the pullback was wide. The Aussie, Kiwi, British Pound and Yen were all heading for their best daily jumps in a month and the Dollar Index looked set for its first weekly loss in four weeks.

The euro rose 0.8% to $1.0072. The Aussie rose 1.2% to $0.6834. The pound rose 0.8% to $1.1590, repairing a modest decline following the death of Queen Elizabeth.

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The yen rose around 0.9%, helped by Bank of Japan Governor Haruhiko Kuroda, who joined a chorus of policymakers expressing unease at the yen’s steeper fall this week. Read more

“The market is now positioning itself ahead of the US CPI release next Tuesday, where a softer impression is expected,” said Charu Chanana, market strategist at Saxo Capital Markets in Singapore.

“With the Federal Reserve having a unified hawkish voice lately, any downside surprises could lead to a big move.”

Federal Reserve Chairman Jerome Powell’s speech at a Cato Institute conference on Thursday reaffirmed the central bank’s aggressive stance on inflation and markets are pricing in an 85% chance of a 75 bp hike. basis (pb) this month. Read more

The ECB may have been surprisingly hawkish in promising further hikes after raising its key rate by an unprecedented 75 basis points on Thursday. Read more

The U.S. dollar index last traded down 0.66% to 108.88, after hitting a 20-year high of 110.79 earlier in the week. It is heading for a weekly decline of 0.7%.

Even battered cryptocurrencies advanced at the expense of the dollar, with bitcoin climbing back above $20,000 and up 5%.

The recent pace of the dollar’s rise has made policymakers uneasy, particularly in Japan, as the policy divergence between the Bank of Japan’s ultra-dovish stance and the Fed is proving too stark for be ignored and hammers the yen.

BOJ Governor Kuroda said on Friday he had discussed the movements in the foreign exchange market during a meeting with Prime Minister Fumio Kishida, and warned that rapid moves in the yen were undesirable.

The comments came after the yen hit a 24-year low of 144.99 to the dollar on Wednesday. It is down almost 2% for the week and on track for four straight weekly losses.

“It seems to us that the BOJ got stuck and is now having a very hard time getting out of it,” said Rodrigo Catril, currency strategist at National Australia Bank.

The Aussie’s Friday jump was enough to help it head into a meager weekly gain and leave the Kiwi’s weekly loss negligible. The British Pound was looking at a weekly rise of 0.6%.

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Reporting by Rae Wee; Editing by Lincoln Feast and Kim Coghill

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