The dollar index rose on Wednesday after Fed Chair Jerome Powell reiterated his commitment to tackling inflation head on, drawing a sharp contrast with other central banks such as the ECB, which is cautiously preparing to hike in July nL1N2YG1KY.
The policy divergence sent EUR/USD to an eight-session low and USD/JPY to a 24-year high.
Spanish inflation surged to 10.2% -- its highest since 1985 -- while German CPI slipped to 8.2% from 8.7%, though the drop appeared tied to fiscal measures meant to offset inflationary pressures nL1N2YG11C.
Worries about recession and further weakness in financial assets sent bund and Treasury yields lower and the dollar higher.
Powell warned that the clock was ticking down before inflation becomes more entrenched, and failing to prevent that would raise the cost of controlling price growth nL1N2YG1KY.
ECB President Christine Lagarde said the pre-pandemic era of ultra-low inflation was unlikely to resume and central banks needed to adjust to higher price pressures nF9N2WY00Z.
However, with markets projecting ECB policy rates to peak below 2% late next year and euro zone overall and core inflation running at 8.1% and 4.4% in May, it may be difficult to check price growth substantially.
EUR/USD's bearish rejection from the converged 30- and 55-day moving averages this week shifts the focus back toward June, May and 2017's lows at 1.3059/49/40 on EBS.
USD/JPY was up 0.3% after earlier hitting a 24-year high at 137.00 and large options expiries there before dipping on risk aversion that pushed Treasury yields and energy markets lower.
The energy retreat helped the yen broadly since Japan depends on energy imports.
A USD/JPY close above Wednesday's 137.00 high could target longer-term resistance at 138.62 and 139.90 with the BOJ yet to signal any adjustment to its yield curve control policy nL1N2YG1C9.
Sterling sank 0.55%, trailing the dollar's gains against the euro and after likely triggering sell stops below last week's lows nL8N2YG4MN.
Also dragging on the pound were somewhat dovish comments from incoming BoE policymaker Swati Dhingra and BoE Governor Andrew Bailey, where there appeared to be greater caution about the pace of rate hikes given recent weakening of economic data nL8N2YG4MN.
In the wake of the SNB's shock 50bp rate hike earlier this month, EUR/CHF tumbled below parity Wednesday and is down roughly 1% and probing below this year's prior 0.9973 nadir, which was lowest since the January 2015 when the 1.20 floor was removed and prices collapsed to 0.8500.
If the SNB stands aside it could add fresh pressure on the euro and global financial assets the SNB had for years been investing its FX purchases into.
Falling commodity prices weighed on commodity currencies.
Bitcoin and ether fell roughly 1% and 3%, respectively, with riskier assets shunned.
Thursday features U.S. PCE, income, consumption and savings that will inform Fed policy expectations.
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