Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Dollar Drops Sharply; Hawkish ECB Boosts Euro

Published 09/09/2022, 08:46
Updated 09/09/2022, 08:46
© Reuters.

© Reuters.

By Peter Nurse

Investing.com - The U.S. dollar dropped sharply in early European trade Friday, after hawkish comments from the European Central Bank prompted traders to reassess global rate hike expectations.

At 03:15 ET (07:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 1.1% lower to 108.585, heading for a 0.6% weekly drop after climbing to a 20-year high of 110.79 earlier in the week.

Federal Reserve chair Jerome Powell reiterated Thursday that the central bank was "strongly committed" to controlling inflation, a stance that largely cemented the market’s belief that the U.S. central bank will hike by 75 basis points at its next meeting in just under two weeks.

However, his comments were largely expected, and it was the very hawkish stance of the ECB which changed the dial.

The European Central Bank raised its key interest rates by an unprecedented 75 basis points on Thursday and promised further hikes, prioritizing the fight against inflation even as the bloc is likely heading towards a winter recession.

The hawkish stance prompted a sharp bout of profit-taking after the dollar's long rally, with some traders attempting to square up positions as it became clear other central banks other than the Fed were now hike aggressively to tame inflation.

EUR/USD rose 1% to 1.0091, climbing firmly back towards parity after hitting a 20-year low of 0.9863 earlier in the week.

Traders are also focusing on the EU summit later Friday as the 27-member bloc gets together to discuss its response to the regional energy crisis.

Belgian Prime Minister Alexander De Croo warned Thursday that Europe faces "de-industrialization and severe risk of fundamental social unrest" because of the energy crisis.

GBP/USD rose 1% to 1.1616, heading for the best daily jumps in a month, and recovering from the modest dip made after the death of Queen Elizabeth II.

USD/JPY fell 1.2% to 142.31, helped by Bank of Japan Governor Haruhiko Kuroda stating that rapid yen moves were undesirable after a meeting with Prime Minister Fumio Kishida on Friday, adding to the recent verbal warnings over the currency's recent sharp drop to 24-year lows.

Risk-sensitive AUD/USD rose 1.4 to 0.6845, while USD/CNY fell 0.5% to 6.9264 after data on Friday showed Chinese inflation shrank in August, potentially opening the path for further monetary policy accommodation by the Chinese authorities.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.