Against the yen, the dollar hit a four-and-a-half-year high and tested the $ 1.12 level against the euro, supported by strong US retail sales data and restrictive comments from Fed officials, which contrasted with dovish statements by the president of the European Central Bank.
“The market is now beginning to understand that there will be divergent issues in exchange rates,” said Edward Moya, senior market analyst at foreign exchange brokerage Oanda. “I think a volatile period awaits us (…) we continue to see markets obsessed with inflation”, he claimed.
In turn, money markets are pricing in a high probability of a Fed rate hike in June, followed by another in November. CME data suggests a 50% probability of a 25 basis point rate hike by July 2022.
The dollar soared last week after data showed US consumer prices rose in October at the fastest rate since 1990. That momentum continued until Tuesday, when a report showed that retail sales rose more than expected last month.
The greenback rose to 114,975 yen, its highest since March 2017, before falling back and trading at 114,135 yen. The euro was down a low 0.07% to $ 1.1312.
While, the British pound rose to a one-week high against the dollar already a 21-month peak against the euro, after UK inflation data strengthened expectations of a rate hike as early as next month.