© Reuters. FILE PHOTO: An illustration showing a US $100 banknote is taken in Tokyo on August 2, 2011. REUTERS/Yuriko Nakao
(removes the incorrect statement from paragraph 10 that the Australian and New Zealand dollars are made up of)
Written by Harry Robertson and Kevin Buckland
LONDON/TOKYO (Reuters) – The US dollar rose sharply on Wednesday to a two-month high after data showed European inflation was cooling faster than expected and China’s recovery was faltering.
The euro was last down 0.67% at $1.066, its lowest since March 20.
That helped the dollar index, which tracks the greenback against six major peers, climbed 0.51% to 104.6, the highest level since March 16.
Data on Wednesday showed that inflation in France and some of Germany’s largest states is slowing rapidly. Analysts said the figures eased pressure on the European Central Bank to continue raising interest rates, which has reduced the euro’s attractiveness relative to the dollar.
In France, inflation eased in May to its lowest level in a year as increases in energy and food prices eased. Eurozone inflation data is due for release tomorrow.
“European inflation is now declining and you are giving back some of the previously expected hikes from the ECB,” said Carl Hammer, chief strategist at SEB.
Hammer also said that a potential solution to the US debt ceiling crisis is supportive of US stocks and is likely to help the dollar.
Analysts said weak economic data out of China boosted the greenback. China’s factory activity contracted faster than expected in May, a survey released on Wednesday showed, in the latest indication of the country’s recovery from COVID-19 lockdowns.
The data strongly affected the Australian and New Zealand dollars.
The Australian dollar fell to its lowest since mid-November at $0.648. Meanwhile, it also fell to its lowest since November at $7.129.
“All else being equal, a weak China is positive for the US dollar, and the yen to some extent, against the euro or the euro,” said Shusuke Yamada, chief forex and rates analyst at Bank of America (NYSE:) in Tokyo. .
On a busy day in the currency markets, the Japanese yen rebounded against the dollar.
The dollar rose to a six-month high of 140.93 on Tuesday, but then fell sharply after Japan’s top currency diplomat said officials would “closely monitor currency market movements and respond appropriately as needed.”
It initially continued that decline on Wednesday but rose very slightly at 139.83 yen.
“I think the real line in the sand is the 150,” said Bart Wakabayashi, general manager at the 150. State Street (NYSE:) in Tokyo.
“If we get past 145, we’ll see pretty much every Japanese official trying to talk it out, and if they don’t like what they’re seeing, they’ll act,” he said, referring to the risk of currency interference.
Sterling last fell 0.42% to $1.236.
The Turkish lira plunged to a record low of 20.75 to the dollar after President Recep Tayyip Erdogan extended two decades in power in Sunday’s elections.