NEW YORK : The dollar retraced from a 20-year high and the euro broke back above parity, following a brief dip below, after data on Wednesday showed U.S. consumer price inflation surged to a more than 40-year high in June.
U.S. annual consumer prices jumped 9.1 per cent in June, the largest increase in more than four decades, leaving Americans to dig deeper to pay for gasoline, food, healthcare and rent.
"This morning's number is staggeringly high. It's higher than expected and shows that inflation is going quickly in the wrong direction," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
The euro plunged to $0.9998 against the greenback after the data, breaking below the $1 level for the first time since December 2002, before bouncing back to last trade at $1.0061.
The single currency is viewed as having support at the $1 area.
The dollar index reached 108.59, the highest since October 2002, before falling back to 107.95.
The euro is being hurt as the region faces an energy crisis sparked by sanctions imposed on Russia due to its invasion of Ukraine.
"The sanctions that are trying to hurt Russia are also hurting the European Union," said Lou Brien, a market strategist at DRW Trading in Chicago. "They are in a tough time to begin with coming out of the pandemic, but this additional layer of trouble also makes the euro less attractive."
Concerns about Europe's outlook have increased since the biggest single pipeline carrying Russian gas to Germany, Nord Stream 1, began annual maintenance on Monday. Governments, markets and companies are worried the shutdown might be extended because of the Ukraine war.
The Federal Reserve is also expected to hike rates further than peers including the European Central Bank.
Traders ramped up bets after the inflation print that the U.S. central bank could raise rates by 100 basis points when it meets on July 26-27. A hike of at least 75 basis points is seen as almost certain.
Atlanta Fed President Raphael Bostic on Wednesday said that the higher-than-expected June inflation might require policymakers to consider an increase of 100 basis points at the meeting.
The ECB is expected to raise rates by 25 basis points at its July 21 meeting, the first increase since 2011.
The euro's depreciation is unlikely to influence its rate path. The ECB is watching the euro exchange rate because of its impact on inflation but does not target a specific level, an ECB spokesperson said.
The Canadian loonie gained after the Bank of Canada raised its benchmark interest rate by a full percentage point, surprising markets with its biggest rake hike since 1998.
The greenback fell 0.39 per cent against the Canadian currency to C$1.2967.
The U.S. dollar gained 0.31 per cent against the Japanese yen to 137.33, after earlier hitting a 24-year high of 137.81.
In the cryptocurrency market bitcoin gained 2.43 per cent to $19,791
Currency bid prices at 3:00PM (1900 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 107.9500 108.2000 -0.22 per cent 12.844 per cent +108.5900 +107.4700
Euro/Dollar $1.0061 $1.0036 +0.26 per cent -11.49 per cent +$1.0122 +$0.9998
Dollar/Yen 137.3300 136.8750 +0.31 per cent +19.27 per cent +137.8600 +136.6900
Euro/Yen 138.18 137.37 +0.59 per cent +6.03 per cent +138.7900 +137.1300
Dollar/Swiss 0.9794 0.9821 -0.28 per cent +7.37 per cent +0.9829 +0.9752
Sterling/Dollar $1.1905 $1.1885 +0.17 per cent -11.97 per cent +$1.1966 +$1.1828
Dollar/Canadian 1.2967 1.3021 -0.39 per cent +2.58 per cent +1.3060 +1.2938
Aussie/Dollar $0.6768 $0.6757 +0.16 per cent -6.89 per cent +$0.6803 +$0.6726
Euro/Swiss 0.9852 0.9854 -0.02 per cent -4.99 per cent +0.9883 +0.9807
Euro/Sterling 0.8450 0.8438 +0.14 per cent +0.60 per cent +0.8468 +0.8404
NZ $0.6137 $0.6127 +0.23 per cent -10.28 per cent +$0.6171 +$0.6081
Dollar/Norway 10.1810 10.2520 -0.70 per cent +15.56 per cent +10.2825 +10.1440
Euro/Norway 10.2454 10.2876 -0.41 per cent +2.32 per cent +10.3055 +10.2413
Dollar/Sweden 10.5393 10.5637 -0.07 per cent +16.87 per cent +10.6232 +10.4750
Euro/Sweden 10.6041 10.6110 -0.07 per cent +3.62 per cent +10.6326 +10.5940