Title: Dollar Soars to Two-Decade High; Yen Hit Particularly Hard

Jul 11, 2022 02:54AM ET

By: AnalysisWatch

The US dollar climbed to a new 20-year high in early European trading on Monday, gaining strongly against the Japanese yen in particular. This was due to concerns about the global growth outlook ahead of the release of key US inflation data later in the week.

At 02:55 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.5% higher at 107.325, a level not seen since early 2002.

USD/JPY rose 0.7% to 137.03, giving back some of its gains after climbing as high as 137.26 in early trade, the highest since late 1998, a 24-year high.

The yen's weakness accelerated after Japan's ruling coalition expanded its majority in Sunday's upper house election, suggesting the electorate remains behind the country's super-loose monetary policy.

The latest US consumer price index will be released on Wednesday and is expected to show a year-on-year increase of 8.8% and a month-on-month increase of 1.1%. Combined with strong non-farm payrolls data released on Friday, this will point to another 75 basis point rate hike by the Fed - which is likely to have a negative impact on global growth.

EUR/USD fell 0.5% to 1.0129, back towards the 20-year low hit on Friday, as the risk of a recession in the Eurozone rises with the increasing likelihood of an energy crisis in the region.

The likelihood of an economic contraction has risen to 45% from 30% in the previous survey and 20% before Russia's invasion of Ukraine, according to economists surveyed by Bloomberg.

Germany, the region's biggest economy, is more likely to contract as it is vulnerable to cuts in Russian energy supplies.

GBP/USD fell 0.4% to 1.1975, with political uncertainty over the choice of the ruling Conservatives' next party leader and prime minister weighing on the pound.

The risk-sensitive AUD/USD fell 0.7% to 0.6809, NZD/USD eased 0.5% to 0.6161, while USD/CAD rose 0.4% to 1.2998 ahead of the latest Reserve Bank of New Zealand and Bank of Canada meetings, both due later this week.