Dollar hits highest since mid-March on cooling European inflation

The U.S. dollar surged on Wednesday to a more than two-month high due to data showing that China’s recovery is faltering and European inflation is declining faster than anticipated.

The euro dropped to its lowest level since March 20 at $1.066 earlier today. It last decreased by 0.64% to $1.06665.

As a result, the dollar index, which compares its value to those of six major rivals, increased to 104.63, its highest level since March 16. At 104.570, it was last up 0.509%.

According to data released on Wednesday, inflation is declining in France and some of Germany’s largest states. According to analysts, the numbers lessened the pressure on the European Central Bank (ECB) to continue rising interest rates, which decreased the attractiveness of the euro in comparison to the dollar.

According to Chris Gaffney, president of world markets at TIAA Bank, “it makes an ECB rate increase less likely with the weaker-than-expected inflation data in France, so definitely helps weaken the euro.”

As increases in the price of energy and food slowed, France’s inflation fell to its lowest point in a year in May. Data on inflation across the Eurozone is expected tomorrow.

Carl Hammer, chief strategist of European bank SEB, said, “European inflation is rolling back now, and you’re taking back some of the previously anticipated hikes from the ECB.”

Hammer said that the impending conclusion of the U.S. debt ceiling impasse was bolstering American stocks and probably strengthening the dollar.

Analysts say the U.S. dollar gained value due to China’s dismal economic data. According to a poll released on Wednesday, China’s factory activity decreased more quickly than anticipated in May, the latest indication that the nation’s recovery from COVID-19 lockdowns is stalling.

The Chinese yuan dropped to its lowest level since November, recently declining against the dollar at 7.1304.

“The dollar is strengthening after weaker-than-expected Chinese figures were reported. Overnight, that was the dominant driver, according to Gaffney. It provides investors a little cause for concern about the global recovery and the likelihood that the world economy would enter a recession.

The Japanese yen recently traded at 140.00 per dollar, down 0.15% on a hectic day on the currency markets.

On Tuesday, the dollar reached a six-month high versus the yen at 140.93, but after Japan’s top currency ambassador warned regulators “will closely watch currency market moves and respond appropriately as needed,” the dollar immediately dropped.

Sterling last traded at $1.2368, down 0.36% on the day.

In cryptocurrencies, bitcoin last fell 2.89% to $26,905.00. Ethereum last fell 2.55% to $1,855.70.

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