The U.S. dollar skyrocketed to a 24-year high. What about Euro?

The U.S. dollar skyrocketed to a new 24-year high versus the Japanese yen on Thursday. The greenback hit 147.57 yen today, reaching its highest level since August 1998. It gained almost 0.4% at 147.49 yen at last. The dollar also soared against the other major currencies. The U.S. inflation report came hot, and investors are discussing the possible 100-basis-point interest rate increase at the next month’s U.S. Federal Reserve policy meeting.

Moreover, U.S consumer prices jumped more than analysts expected in September. The Labor Department released new data showing that underlying inflation pressures were also escalating. Overall, the consumer price index surged by 0.4% in the previous month after adding 0.1% in August. Economists had forecasted the CPI to rise by 0.2%, but the CPI rallied to 8.2% over the year till August, reaching 8.3% that month. Considering this news, the policymakers might deliver at least a 75-basis-point rate hike.

Arthur Laffer, the president of Laffer Tengler Investments in Nashville, Tennessee, noted that the Fed won’t change its path right now. It has got to get a handle on soaring inflation. However, the more they increase rates, the more wishful it becomes to think about a soft landing. Traders will probably see a negative fourth quarter this year.

Investors are waiting to see whether the Japanese government will intervene again to help a suffering yen. The Authorities have reiterated recently that they would take appropriate steps to counter excessive currency moves. But it’s unclear whether they wish to defend particular levels or not.

The U.S. dollar also rallied versus the euro. The common currency tumbled to a two-week low today, shaving off 0.6% at $0.9659. Against the Swiss franc, the greenback skyrocketed to its highest level since May 2019, adding almost 1% at 1.0068 francs.

How are the EM currencies faring today?

Emerging market currencies traded flat, some of them dropping, with market participants awaiting U.S. inflation data. The stocks also shaved off 1% on Thursday, losing for the third consecutive session. Most major Asian shares dropped, along with the stocks in South Africa, Hungary, Poland, Turkey, and Russia. On the other hand, some Middle Eastern indexes climbed up.

Most central and eastern European currencies remained subdued versus the Euro on Thursday. Hungary’s forint plunged to fresh lows for its fourth straight day, though. The currency fell to 433.89 against the euro today, suffering its eighth consecutive session of losses. The forint is experiencing its longest losing streak since March 2021.

The Russia-Ukraine war is escalating, and Hungary’s proximity to Ukraine isn’t helping matters. Investors are also concerned about energy supplies, soaring energy costs, and access to European Union funds. Consequently, the forint collapsed by almost 15% over the year, losing the most among regional peers. Hungary’s central bank decided to leave its one-week deposit rate the same at 13.00% at a weekly meeting today.

What about the South Korean won and Mexico’s peso?

The South Korean won shaved off 0.5% on Thursday. South Africa’s rand also tumbled by 0.4%. Meanwhile, Mexico’s peso and Turkish lira traded flat today.

In India, the rupee plunged to all-time lows last week. After that, the central bank asked local banks to abstain from building additional positions in the non-deliverable forward market. The central bank fears that such a move could lead to volatility in local markets.

The Federal Reserve’s decision about the rate hike will also influence the markets. While headline inflation seems to be falling year-on-year, it is higher this month compared to the previous one.

Thu Lan Nguyen, the FX and commodity analyst at Commerzbank, stated that Federal Reserve’s minutes have confirmed what central banks have been repeating recently: lowering inflation to the 2% target is the highest priority. The greenback has already rallied significantly in recent days. However, Nguyen thinks that a strong U.S. dollar could create some risks because of the current inflation levels. The latter are very far away from the agency’s target.

In addition, emerging market shares seem set to experience their worst year since the global financial crisis in 2008. Traders are concerned about central banks’ aggressive policy tightening to bring down inflation. Increasing fiscal pressures and debt levels also underscore the urgency for more so-called “orderly debt restructuring” efforts for low-income countries. Currently, emerging market currencies are on course for their worst year on record.

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