Dollar set for weekly loss as traders eye more ECB hikes, US inflation data

By Rae Wee

SINGAPORE (Reuters) - The dollar recoiled from recent peaks in Asia on Friday as a hawkish rate hike from the European Central Bank lifted the euro and investors looked to U.S. inflation data early next week.

Profit-taking after a sharp extension of the dollar's long rally also took hold and the pullback was broad. The Aussie, kiwi, sterling and yen were all headed for their best daily jumps in a month and the dollar index looked set for its first weekly loss in four weeks.

The euro rose 0.8% to $1.0072. The Aussie rose 1.2% to $0.6834. Sterling rose 0.8% to $1.1590, repairing a modest dip made after the death of Queen Elizabeth.

The yen rose about 0.9%, helped by Bank of Japan Governor Haruhiko Kuroda joining a chorus of policymakers voicing discomfort over sharper falls in the yen this week.

"The market is now positioning ahead of the U.S. CPI release next Tuesday, where the expectations are for a softer headline print," said Charu Chanana, a market strategist at Saxo Capital Markets in Singapore.

"With the Federal Reserve having a unified hawkish voice lately, any downside surprise could result in a big move."

Federal Reserve Chair Jerome Powell's speech at a Cato Institute conference on Thursday reaffirmed the central bank's aggressive stance against inflation and markets are pricing in an 85% chance of a 75 basis point (bps) hike this month.

The ECB was perhaps surprisingly hawkish in promising further hikes after raising its key interest rate by an unprecedented 75 bps on Thursday.

The U.S. dollar index last traded 0.66% lower at 108.88, after scaling a 20-year high of 110.79 earlier in the week. It's heading for a weekly drop of 0.7%.

Even beaten down crypto currencies advanced at the dollar's expense, with bitcoin back above $20,000 and up 5%.

The recent pace of the dollar's ascent has left policymakers uncomfortable, particularly in Japan, as the policy divergence between the Bank of Japan's ultra-dovish stance and the Fed is proving too stark to be ignored and is pummelling the yen.

BOJ Governor Kuroda said on Friday he discussed currency market moves at a meeting with Prime Minister Fumio Kishida, and warned that rapid yen moves were undesirable.

The comments came after the yen bottomed at a 24-year low of 144.99 per dollar on Wednesday. It is down nearly 2% for the week, and on track for four straight weekly losses.

"It seems to us that the BOJ has worked itself into a corner, and now is finding it very difficult to get out of it," said Rodrigo Catril, a currency strategist at National Australia Bank.

Friday's jump in the Aussie was enough to help it head toward a meagre weekly gain and to leave the kiwi's weekly loss negligible. Sterling eyed a weekly rise of 0.6%.

 

(Reporting by Rae Wee; Editing by Lincoln Feast and Kim Coghill)