US Markets

FOREX-Fears that high inflation could crimp global growth send dollar to 20-yr high

Credit: REUTERS/Dado Ruvic

By Chuck Mikolajczak

NEW YORK, May 12 (Reuters) - The dollar climbed to a 20-year high on Thursday as concerns persisted that central bank actions to counter high inflation would crimp global economic growth, boosting the currency's safe-haven appeal.

Data from the Labor Department showed weekly initial jobless claims rose to their highest level in three months, although the labor market remains a strength of the U.S. economy, while the producer price index showed a sharp deceleration in April to a 0.5% rise from the 1.6% surge the prior month, thanks in part to a sharp drop in energy products.

In the 12 months through April, the PPI increased 11.0% after accelerating 11.5% in March and above an estimated increase of 10.7%.

"PPI slightly mixed to slightly less than expected today but overall there is still a lot to worry about... if S&P sells off again that is going to be broadly supportive of dollars," said Erik Bregar Director, FX & Precious Metals Risk Management at Silver Gold Bull Inc in Toronto.

"We could get to a point where positioning becomes a little lopsided and that could maybe engineer some short covering in equities and maybe some cooling off in the dollar broadly but right now, the news cycle, you are finding enough reasons to stay long dollars."

The dollar index =USD rose 0.433% at 104.450 after touching 104.72, its highest level since Dec. 12, 2002. The euro EUR= down 0.95% to $1.0411 after falling to 1.0328, its lowest since Jan. 3, 2017.

After the Fed raised its benchmark overnight interest rate by 50 basis points last week, the largest hike in 22 years, investors have been attempting to assess how aggressive the central bank will be. Expectations are completely priced in for another hike of at least 50 basis points at the central bank's June meeting, according to CME's FedWatch Tool.

Irish Central Bank Governor Gabriel Makhlouf joined a chorus of European Central Bank policymakers calling for the Governing Council to act to tackle inflation, though not necessarily at the same pace as the U.S. Federal Reserve.

Rick assets have been under pressure for most of the year, with the S&P 500 .SPX on the verge of confirming it is in a bear market, commonly viewed as a decline of 20% from its record high.

Investors have moved towards safe-haven assets such as the dollar as worries have mounted about the Fed's ability to tamp down inflation without causing a recession, as well as repercussions from the war in Ukraine and rising COVID-19 cases in China sapping demand.

On Thursday, OPEC cut its forecast for growth in world oil demand in 2022 for a second straight month.

Another safe-haven, the Japanese yen, strengthened 1.40% versus the greenback at 128.16 per dollar, while Sterling GBP= was last trading at $1.2219, down 0.25% on the day after a flurry of soft economic data in Britain.

In cryptocurrencies, Bitcoin BTC= {BTC=;PCTCHNG;[F1<0]last fell -F1% to[F1>0]last rose F1% toF1=0 was unchanged at} ${BTC=;CF_LAST:2} after falling to $25,390.26, its lowest level since December 2020.

Ethereum ETH=, ETH=BTSP {ETH=;PCTCHNG;[F1<0]last fell -F1% to[F1>0]last rose F1% toF1=0 was unchanged at} ${ETH=;CF_LAST:2}.

World FX rates

(Reporting by Stefano Rebaudo; Editing by Chizu Nomiyama and Raissa Kasolowsky)


Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at and via Reuters TV.