By Karen Brettell
NEW YORK (Reuters) - The dollar slipped from 20-year highs against a basket of currencies on Friday, but posted the best month in seven years as concerns about the global economy and a hawkish Federal Reserve bolstered demand for the greenback.
The dollar hit a 20-year high against the yen on Thursday, as the Japanese currency was hurt by dovish Bank of Japan policy. It also hit a five-year high against the euro, which has dropped sharply since Russia's invasion of Ukraine, with investors concerned about Europe's energy security, inflation and growth.
The greenback gave back some of those gains on Friday as investors took profits, but still ended the month strong.
“We’ve seen some broad-based dollar strength,” said Vassili Serebriakov, an FX strategist at UBS in New York. “There is a general story, which has more to do with concerns about the global cycle and that helps the dollar through risk aversion, but then there are some idiosyncratic stories like dollar/yen.”
Concerns about global growth have increased as China enacts lockdowns in a bid so stop the spread of COVID-19.
China's capital Beijing closed more businesses and residential compounds on Friday, with authorities ramping up contact tracing to contain a COVID-19 outbreak, while resentment at the month-long lockdown in Shanghai grew.
The dollar index against a basket of currencies was last 102.94, after reaching 103.93 on Thursday, which was the highest since Dec. 2002. It is up 4.76% on the month, the biggest gain since Jan. 2015.
The yen was 129.32, after reaching 131.24 on Thursday, the weakest since April 2002. The dollar gained 6.41% against the Japanese currency in April, the best month since Nov. 2016.
The Bank of Japan on Thursday strengthened its commitment to keep interest rates ultra-low by vowing to buy unlimited amounts of bonds daily to defend its yield target, triggering a fresh sell-off in the yen.
The euro was $1.0569, after dropping to $1.0470 on Thursday, the lowest since Jan. 2017. The single currency has dropped 4.51% this month, the most since Jan. 2015.
The greenback briefly pared losses after data on Friday showed that U.S. consumer spending increased more than expected in March amid strong demand for services, while monthly inflation surged by the most since 2005.
The Fed is expected to raise rates by 50 basis points and announce plans to reduce its $9 trillion balance sheet when it concludes its two-day meeting on Wednesday as it tackles soaring inflation.
Fed funds futures traders are pricing for the fed funds rate to rise to 2.83% by year-end, from 0.33% now.
Still, some analysts note that markets have already priced in aggressive Fed tightening, which could dampen future Treasury yield increases and dollar gains.
"We already have huge degrees of tightening priced into the dollar curve – I’m not sure we will be able to meet that scale or scope of Fed tightening," said Jeremy Stretch, head of G10 FX strategy at CIBC.
The British pound rose to $1.2598, after dropping to $1.2410 on Thursday, the weakest since July 2020. It lost 4.24% this month, the most since Oct. 2016. [GBP/]
Currency bid prices at 3:00PM (1900 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 102.9400 103.6300 -0.65% 7.607% +103.6300 +102.8100
Euro/Dollar $1.0569 $1.0500 +0.66% -7.03% +$1.0593 +$1.0492
Dollar/Yen 129.4300 130.7950 -1.03% +12.44% +130.9450 +129.3250
Euro/Yen 136.81 137.33 -0.38% +4.98% +137.9800 +136.5300
Dollar/Swiss 0.9710 0.9719 -0.08% +6.46% +0.9736 +0.9671
Sterling/Dollar $1.2598 $1.2463 +1.09% -6.85% +$1.2614 +$1.2455
Dollar/Canadian 1.2833 1.2809 +0.20% +1.50% +1.2836 +1.2720
Aussie/Dollar $0.7081 $0.7098 -0.23% -2.57% +$0.7179 +$0.7081
Euro/Swiss 1.0263 1.0204 +0.58% -1.02% +1.0266 +1.0190
Euro/Sterling 0.8388 0.8426 -0.45% -0.14% +0.8432 +0.8383
NZ $0.6468 $0.6489 -0.32% -5.50% +$0.6543 +$0.6459
Dollar/Norway 9.3440 9.4165 -0.74% +6.10% +9.4125 +9.2515
Euro/Norway 9.8797 9.8865 -0.07% -1.33% +9.8950 +9.7504
Dollar/Sweden 9.7841 9.8754 -0.20% +8.50% +9.8895 +9.7364
Euro/Sweden 10.3412 10.3616 -0.20% +1.05% +10.3863 +10.2877