US dollar hits 5-year high on yen, euro pressured by growth risks

HONG KONG (REUTERS) - The dollar hit a new five-year high on the yen on Friday (March 11) after a strong US inflation report, while the euro struggled to hold its own as a hawkish turn from the European Central Bank (ECB) was offset by growth risks emanating from the Ukraine crisis.

The greenback rose as high as 116.39 yen in early trade, its best level since January 2017, while the sterling was beaten down at US$1.3089, having tumbled 0.8 per cent overnight to a 16-month low.

The dollar also strengthened slightly against the Singapore dollar to $1.359 as at 10am on Friday.

Data on Thursday showed that United States consumer prices surged 7.9 per cent year on year in February, in the largest annual increase in 40 years.

The consumer price index data "basically indicates that the Fed should be hiking rates this month, but it also indicates that it will keep going (with hikes) at least initially", said National Bank of Australia currency strategist Rodrigo Catrill.

Both the Fed and the Bank of Japan (BOJ) have policy meetings next week, but while the Fed is all but certain to hike rates from their pandemic low, the BOJ is set to remain an outlier and hold on to a dovish stance on monetary policy, weighing on the yen.

The dollar has gained 1.3 per cent on the Japanese currency this week.

Both the sterling and euro have been hurt by the impact of the conflict in Ukraine and the resulting higher energy prices.

The euro was last at US$1.1010, having finished a choppy Thursday at 0.8 per cent lower, though in the course of the day, it had risen to as high as US$1.112 and dropped as low as US$1.0975.

"The more hawkish message from the ECB had a temporary upward pressure on the euro but it was very short-lived, which tells you that other dynamics are overriding any considerations about what the ECB might do, including news coming from Ukraine," said Mr Catrill.

The ECB said on Thursday it will phase out its stimulus in the third quarter, opening the door to an interest rate hike before the end of 2022 to combat soaring inflation.

It also modestly downgraded its growth forecasts for this year and next, and ramped up inflation expectations, as ECB president Christine Lagarde said the conflict was a "watershed for Europe" that would curb growth but boost inflation.

Talks between the foreign ministers of Ukraine and Russia on Thursday made little apparent progress towards ending a war that is now in its third week.

Elsewhere, high commodity prices continued to boost the Australian and New Zealand dollars.

The Aussie was at US$0.734, having risen 0.49 per cent overnight, while the kiwi was at US$0.6854 after a 0.36 per cent overnight gain.

Bitcoin was around US$39,000, little changed on the week, despite a volatile few days as prices took a round trip in response to an executive order from US President Joe Biden requiring the government to prepare reports on the future of money.