US dollar surges as index hits 100 for first time in nearly two years

LONDON/NEW YORK: The US dollar index on Friday advanced to 100 for the first time in nearly two years, boosted by the prospect of a more aggressive pace of Federal Reserve tightening to curb soaring inflation.

The greenback has gained ground against a basket of six currencies over the past month, particularly versus the euro, which has been pressured by investor concerns about the economic costs of war in Ukraine and a potentially nail-biting presidential election in France.

The dollar index rose as high as 100.19, its highest since May 2020. It was last up 0.2% at 100.01.

“The dollar’s latest pop is the culmination of bullish factors ranging from geopolitical risk, election uncertainty in France, and the Fed’s increasingly hawkish outlook for interest rate,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

The index is up 1.5% this week, which would be its biggest weekly increase in a month, backed by hawkish remarks from several Fed policymakers.

This week’s release of the minutes of the Fed’s March meeting showed “many” participants were prepared to raise rates in 50-basis-point increments in coming months.

On the other side of the dollar’s rally, the euro dropped to a one-month low of $1.0837. It last changed hands at $1.0853, down 0.3% on the day. The euro has fallen in seven straight sessions.

Meeting minutes from the European Central Bank published on Thursday suggested its policymakers are keen to act to combat inflation, but the euro zone has so far taken a more cautious tack than other central banks, weakening the euro.

“ECB minutes presented little in contrast to recent comments by policymakers, though the sense is that the bank is merely awaiting data over the coming months showing the impact of higher energy prices and the war in Ukraine to decide when to hike first — whether it’s in Q3 or Q4,” wrote Shaun Osborne, chief FX strategist, at Scotiabank in Toronto, in a research note.

“In either scenario, we don’t anticipate more than 50 basis points in tightening from the ECB this year, which is only as much as the Fed is set to roll out in one meeting, next month.”

A tightening election race in France between President Emmanuel Macron and far-right candidate Marine Le Pen has added pressure on the euro, raising investor concerns about the future direction of the euro zone’s second biggest economy. Macron is though still ahead in polls.

The dollar rose against the Japanese yen, hitting 124.67 yen, its highest in over a week and approaching last month’s near seven-year high of 125.1.

The yen has steadied this month after tumbling in March, but remains under pressure as the US raises interest rates and the Bank of Japan intervenes in the bond market to keep rates low.

Sterling lost ground versus the dollar, and was last down 0.5% at $1.3005.