The US dollar traded strong to a five -year high on Wednesday ahead of next week's Federal Reserve meeting that is expected to raise rates while the Eurp continued to depreciate amid concerns over Russia's string of economic growth cut gas supplies to parts of the region.
The U.S. dollar has strengthened on expectations that the U.S. central bank. will be more hawkish than other central banks. The Fed is expected to raise rates by 50 basis points at its May 3-4 meeting, as well as in June and July.
The US dollar benefited from global growth concerns as Europe struggled with the effects of the Russian invasion of Ukraine and plus China implemented a curfew in an effort to curb the spread of Covid-19.
Russia's Gazprom decided to cut off gas supplies to Poland and Bulgaria on Wednesday because of their failure to pay in rubles. This sparked a conflict between Russia and Europe in response to Western sanctions imposed on Moscow’s invasion of Ukraine.
According to European FX analyst at HSBC, Dominic Bunning noted that this puts further pressure on gas prices in Europe and exacerbates economic growth and inflation.
Not only that, concerns over developments in China also affected the market to the point of increasing demand for the US dollar and in turn affecting the prospects for other countries that are more vulnerable to the world's second largest economy.
The US dollar index, which measures the US dollar against six major currencies, traded up 0.73% to 103.073.
The Euro slipped 0.83% to $ 1.0549, its weakest level since March 2017. The single currency has slipped 4.7% so far in April and is heading for its worst monthly loss in more than seven years.
The German economy ministry on Wednesday reduced its economic growth forecast for 2022 to 2.2% from a 3.6% growth forecast at the end of January this year. French consumer confidence also fell more than expected in April.
Investors will pay attention to the actions of the Central Bank especially the central bank of Japan on the policies to be taken. Market attention is also focused on the ongoing conflict between Russia and Ukraine.
