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Dollar near 20-year highs, euro jumps on ECB rate rise talk

May 6, 2022

LONDON, May 6 - The dollar edged down on Friday but remained near 20-year highs against major peers, while the euro jumped on European Central Bank members talking up a return to positive rates this year.

The safe haven greenback has broadly strengthened in recent weeks in response to global recession fears, and on bets that the Federal Reserve will tighten monetary policy faster than others to stem runaway inflation.

But after hitting a fresh 20-year high of 104.07 earlier in the trading session, the dollar index lost momentum and was last down 0.3% at 103.29.

The fall was partly explained by gains made by the euro, which gained as much as 0.6% on the day. The euro was last up 0.5% at $1.0587.

The single currency was lifted by comments made by French central bank chief Francois Villeroy de Galhau, who said the ECB should raise its deposit rate back into positive territory this year. read more

The ECB has been moving slowly to remove support this year, but record inflation has prompted more members to call for action.

ECB policymaker Joachim Nagel, who heads Germany's Bundesbank, also indicated support for a move sooner rather than later in separate comments on Friday, saying the ECB's window for raising rates was slowly closing.

"It looks like the ECB is preparing the ground now to deliver a rate rise in July, which looks increasingly like the base case scenario. It doesn't look like it will be one and done this year either," said Lee Hardman, currency analyst at MUFG.

"The inflation pressure is too much for central banks to look through, even if risks to growth are heavily weighted to the downside."

European stocks are heading for their worst week in two months on the deteriorating economic outlook, following a rout on Wall Street. read more

The U.S. currency has stood tall on expectations the Federal Reserve will swiftly act to combat inflation.

A closely-watched U.S. jobs report due later on Friday could strengthen the case for aggressive tightening, analysts said.

Economists predict a solid 391,000 U.S. jobs were added last month, according to a Reuters poll.

The Fed raised rates by half a percentage point on Wednesday - the biggest jump in 22 years - but the dollar temporarily cooled on Fed Chair Jerome Powell comments that policymakers were not actively considering 75 basis point hikes in future. read more

Sterling was broadly flat after earlier dropping below $1.23 for the first time in nearly two years, a day after the Bank of England sent a stark warning that Britain risks a double-whammy of a recession and inflation above 10%.

The BoE also joined the Fed in raising rates, hiking them by a quarter of a percentage point to 1%.

The yen fell back slightly against the dollar, down 0.1% to 130.35 yen per dollar.

In cryptocurrencies, bitcoin weakened 2% to trade just below $36,000

REUTERS

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