The U.S. dollar rallied on Friday. It skyrocketed to a six-week peak against a basket of six major currencies. Several reports showed that the U.S. economy remains strong. Such news buoyed the markets. Investors think that Fed might continue hiking its interest rates.

On Thursday, data showed that the number of U.S. citizens filing new claims for unemployment benefits considerably dropped last week. This was unexpected. Another data source reported that in January, monthly producer prices jumped by the most in seven months. Consequently, the greenback surged forward, while the Euro, Sterling, and Yen ended in the red.

The U.S. dollar index soared to a six-week high of 104.44 against the basket of currencies. It exchanged hands higher by 0.28% at 104.40 at last, set for a third consecutive week of gains.

Meanwhile, the common currency plummeted by 0.34% to $1.0635. The euro hit its new low at $1.0632 earlier in today’s session before recovering slightly. At the same time, the British Pound plunged by 0.32% to $1.1949.

Tina Teng, the market analyst at CMC Markets, noted that recent data showed that the U.S. economy is still fairly healthy. It likely won’t go into a recession any time soon. As a result, traders are now pricing for higher rates for longer periods.

Earlier this week, data showed that U.S. retail sales were robust in January. However, inflation persists. Thus, investors feared that the Fed would have to hike rates higher than analysts had previously expected. The problem was that it could cause a recession if the American economy weren’t strong enough. But new reports allay such fears.

How are the Aussie and Kiwi faring? 

The riskier Australian dollar tumbled by more than 0.6% to $0.68325 today. The currency was at its lowest level since January 6 as traders flocked to stronger dollars. The New Zealand dollar also struggled. It plunged to $0.6216, hitting a six-week low.

Moreover, the dollar gained against the Japanese yen, adding 0.6%. It exchanged hands at a one-month high of 134.815 at last. Overall, the USD/JPY pair gained about 2.5% this week. The Japanese authorities, at last, decided that academic Kazuo Ueda would become the BOJ’s next governor. He will succeed the current governor in April.

On Friday, finance minister Shunichi Suzuki stated that Ueda would help keep inflation on target, as well as sustain wage hikes and economic growth. Jane Foley, the head of FX strategy at Rabobank, also noted that nominee Governor Ueda’s most important task would be to guide the central bank to exit its ultra-easy policy. However, the BOJ isn’t in any hurry to change its stance.

What about the EM currencies? 

Asian emerging currencies continued trading on a bearish market today. Some of them started the year with substantial gains. However, as the greenback rallies, most of the EM currencies move into red territory.

On Friday, the Malaysian ringgit suffered the most. It plummeted by 0.6%. The currency almost hit a one-month low. Overall, it has shaved off 2.3% this week, experiencing its steepest drop since the coronavirus pandemic began.

The Singapore dollar declined by 0.2% today. Meanwhile, the Indian rupee tumbled by 0.1%. Both currencies hit their lowest levels since January 6.

Two Fed officials stated today the agency should have hiked interest rates more than it did early in February. These comments weighed on investor sentiment.

Analysts at ANZ noted that the rally in EM markets stopped as traders feared that the U.S. central bank will continue rate increases for an extended period. However, analysts think these concerns aren’t enough for EM currencies to remain in the red long-term.

On Friday, the Thai baht plunged by 0.4%, though. New data showed that Thailand’s economy grew by only 1.4% in the October-December period year-to-year. A decline in manufacturing and exports caused such drawbacks.

The economists expected a 3.5% year-on-year increase. However, the economy contracted on a quarter-on-quarter basis. This news surprised the markets and pushed the baht lower.

Poon Panichpibool, the market strategist at Krung Thai Bank, noted that the GDP reading was much weaker than the markets expected. Some foreign investors might contemplate reducing their long positions or taking profits. Considering that the forex profits have decreased by 50% due to the baht sharp drop, that’s highly possible.

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• Source: https://www.financebrokerage.com/the-u-s-dollar-hit-new-high-on-friday-what-about-the-yen/