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Dollar hits more than two-month high as European inflation cools

Wednesday,   31-May-2023   03:27 PM (IST)

The U.S. dollar rose strongly on Wednesday to a more than two-month high after data showed European inflation is cooling quicker than expected and China's recovery is sputtering. The euro was last down 0.67% at $1.066, the lowest since March 20. That helped the dollar index, which measures the greenback against six major peers, climb 0.51% to 104.6, its highest since March 16. Data on Wednesday showed that inflation in France and some of Germany's biggest states is slowing quickly. Analysts said the figures reduced the pressure on the European Central Bank (ECB) to keep raising interest rates, diminishing the euro's attractiveness relative to the dollar. In France, inflation cooled in May to its lowest level in a year as energy and food price increases moderated. Euro zone-wide inflation data is due out tomorrow. Weak economic data out of China also boosted the U.S. currency, analysts said. A survey released on Wednesday showed that China's factory activity shrank faster than expected in May, in the latest sign that the country's recovery from COVID-19 lockdowns is faltering. The data weighed heavily on the Australian and New Zealand dollars, two components of the dollar index. Australia's dollar fell to its lowest since mid-November at $0.648. Meanwhile, China's yuan also fell to its lowest since November at 7.129 per dollar. In a busy day in currency markets, the Japanese yen bounced around against the dollar. The dollar rose to a six-month peak of 140.93 on Tuesday but then fell sharply after Japan's top currency diplomat said officials "will closely watch currency market moves and respond appropriately as needed". It initially continued that fall on Wednesday but was last up very slightly at 139.83 yen. Sterling was last down 0.42% to $1.236. The Turkish lira sank to a record low of 20.75 per dollar after President Tayyip Erdogan extended his two decades in power in elections on Sunday.