NEW YORK: On Friday, the US dollar pulled back from recent highs in Asia as investors anticipated U.S. inflation data early the next week and the euro was boosted by the European Central Bank's aggressive rate hike.
After a sharp extension of the long dollar rally, profit-taking also started to take hold, and a significant pullback followed. The dollar index was set for its first weekly loss in four weeks, while the Australian, Kiwi, Sterling, and Yen were all on track for their greatest daily gains in a month. EUR/USD increased by 0.8 percent to USD 1.0072. Aussie increased 1.2 percent to USD 0.6834. After a little decline following the passing of Queen Elizabeth, the value of the pound increased by 0.8 percent to USD 1.1590.
The Bank of Japan Governor Haruhiko Kuroda joined the chorus of policymakers who expressed unease over the greater declines in the yen this week helped the yen rise by nearly 0.9 percent. Market strategist Charu Chanana of Saxo Capital Markets in Singapore said, "The market is currently positioning ahead of the U.S. CPI announcement next Tuesday, where the expectations are for a softer headline print."
Any negative surprise could trigger a significant reaction, given that the Federal Reserve has recently adopted an uniform hawkish stance. The market is pricing in an 85 percent chance of a 75 basis point (bps) hike this month after Federal Reserve Chair Jerome Powell reiterated the central bank's tough stance against inflation in a speech at a Cato Institute conference on Thursday.
After raising its benchmark interest rate by a historic 75 basis points on Thursday, the ECB was perhaps unexpectedly hawkish in its promises of additional increases. The U.S. dollar index reached a 20-year high of 110.79 earlier in the week before closing the week at 108.88, down 0.66 percent. There will be a weekly decline of 0.7 percent. Even beaten-down cryptocurrencies like bitcoin, which has returned to the USD 20,000 mark and gained 5 percent, climbed against the dollar. Policymakers are uneasy about the recent rate of the dollar's rise, especially in Japan where the yen is being battered by the clear policy divergence between the ultra-dovish position of the Bank of Japan and the Fed.
In a meeting with Prime Minister Fumio Kishida on Friday, BOJ Governor Kuroda said he reviewed currency market movements and warned against yen moves that were happening too quickly. The remarks were made following the yen's 24-year low on Wednesday of 144.99 per dollar. It has lost almost 2 percent this week, and it looks like it will continue to lose each week.
National Australia Bank currency strategist Rodrigo Catril said, "It seems to us that the BOJ has dug itself into a corner, and now is finding it very difficult to get out of it." The Australian dollar's advance on Friday was sufficient to push it toward a marginal weekly gain while negligibly reducing the kiwi's weekly loss. Sterling was projected to increase by 0.6 percent on a weekly basis.
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