With the surprise change of the European Central Bank (ECB) offset by growth risks from Russia's invasion of Ukraine. The US Dollar Index, which tracks the greenback against a basket of other currencies, edged up 0.02% to 98,520.
The USD/JPY pair rose 0.29% to 116.47, with the dollar up 1.3% on the yen this week. The AUD/USD pair fell 0.23% to 0.7340 and the NZD/USD pair edged down 0.15% to 0.6852. The USD/CNY pair edged up 0.05% to 6.3248 and the GBP/USD pair edged up 0.04% to 1.3089.
The US report, released on Thursday, showed that the consumer price index (CPI) grew 7.9% year-on-year and 0.8% month-on-month in February. Core CPI grew 0.5% month-on-month and 6.4% year-on-year.
The CPI data shows that the US Federal Reserve should raise interest rates this month, but also suggests that they will continue to hike rates, at least initially.
The Fed and the Bank of Japan will both make policy decisions the following week. While the Fed is widely expected to raise interest rates, its Japanese counterpart has opted to maintain a more dovish stance.
Euro Moves Lower Following ECB Announcement
Both the pound and the euro have felt the impact of the conflict in Ukraine and the resulting spike in commodity cuts. The euro was last trading at $1.1010, after a volatile Thursday that saw it end 0.8% lower.
He was referring to the ECB's policy decision, downgraded on Thursday, which kept interest rates steady at 0% but said that the central bank would cut its stimulus in the third quarter.
The decision also leaves open the possibility of a rate hike before the end of 2022. The ECB also lowered its growth forecasts for 2022 and 2023, while raising inflation expectations.
ECB President Christine Lagarde also called the conflict in Ukraine a “watershed for Europe” that will boost inflation but curb economic growth.
Meanwhile, talks between Ukraine's foreign minister Dmytro Kuleba and his Russian counterpart Sergey Lavrov on Thursday made disappointing little progress towards ending the conflict.
The euro pulled back from overnight gains on Thursday following the European Central Bank's announcement it would remove its stimulus in the third quarter, while the dollar strengthened after a strong US inflation report.
The ECB trailed other major central banks such as the US Federal Reserve and the Bank of England in a post-pandemic tightening cycle, which also weighed on the single currency.
Euro Lows in Trading Session
The euro touched a 22-month low of $1.0804 earlier this week, with investors expecting the crisis in Ukraine to have a major impact on European growth. The single currency is widely seen as a measure of Europe's biggest security crisis since 1945.
Recent speculation that EU leaders are considering issuing joint bonds to finance energy and defense spending, however, gave the euro some support.
European Union leaders meet on Thursday in Versailles, west of Paris. At 3 p.m. Eastern time, the euro was down 0.83% at $1.0985, after jumping 1.6% on Wednesday, its best day in nearly six years.
The Fed is expected to raise interest rates by at least 25 basis points when it meets next week. Our base case scenario is still for the Fed to be the most hawkish central bank in the developed world and that will support the dollar on the margins.
The dollar index was up 0.547% at 98.506, after falling 1.17% on Wednesday. Data on Thursday showed that US consumer prices jumped 7.9% year-on-year in February, culminating in their biggest annual gain in 40 years.
Inflation is poised to accelerate further in the next few months as Russia's war against Ukraine raises the cost of crude oil and other commodities.
Commodity-linked currencies, such as the Australian dollar, New Zealand dollar, and the Canadian dollar, were up today, with the Aussie up 0.58%, the Kiwi up 0.49%, and the loonie up 0.37%.
