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LONDON, May 12 (Reuters) – The dollar rose to fresh two-decade highs on Thursday as concerns that tighter monetary policies to tame surging inflation will hurt the global economy dampened risk sentiment and drove investors into the safe-haven currency.

Data on Wednesday showed U.S. consumer price growth slowed sharply in April, suggesting that inflation had probably peaked, though it was likely to stay hot.

The dollar benefited as the data confirmed expectations for further aggressive hikes in interest rates by the Federal Reserve and investors fretted that central bank tightening could slow global economic growth.

Asian stocks fell to an almost two-year low, European shares tumbled and oil prices were down 2%.

Against this backdrop, the dollar index, which measures the greenback’s strength against a basket of six currencies, rose 0.4% to 104.44, its highest since December 2002.

Despite increasing expectations of a rate hike in July, the euro remained under pressure on fears that the war in Ukraine and rising energy prices could tip the eurozone into recession later this year.

“The market was already priced for this, but we can now have a high level of confidence that the ECB will hike in July,” strategists at MUFG said.

The euro EUR=EBS fell 0.5% to USD 1.0463, after hitting its lowest since January 2017 at USD 1.044.

“The risk sentiment soured further due to the disappointing news regarding China’s Covid situation,” Mizuho strategists said. “Two new infections in Shanghai were reported, which reset the timeline for ending the lockdown.”

Shanghai authorities combed the city on Thursday for its last COVID-19 cases to clear the way for an exit from a painful six-week lockdown.

China’s yuan fell as low as 6.8150 per dollar, its lowest since September 2020, and was last down 0.7% at 6.8125.

The yen rose 1% against the dollar but was not far from its lowest level since April 2002 as hawkish Federal Reserve rhetoric continued to weigh on the Japanese currency.

A Bank of Japan policymaker said it was inappropriate to change monetary policy to control exchange rates, brushing aside the idea of countering sharp yen falls with interest rate hikes.

Bitcoin meanwhile fell to its lowest in 16 months on Thursday, leading a rush out of risk assets, such as tech stocks, while the collapse of TerraUSD, a so-called stablecoin, underscored the strain on cryptocurrency markets.

Bitcoin, the world’s largest cryptocurrency, dropped 3% to USD 27,584, after hitting its lowest since December 2020. It has lost a third of its value in the last eight sessions.

(Reporting by Stefano Rebaudo and Kevin Buckland; Editing by Sam Holmes and Bradley Perrett)

FRANKFURT, May 12 (Reuters) – European Central Bank policymaker Peter Kazimir dropped a hint about a July interest rate increase on social media on Wednesday, joining a growing number of colleagues in calling for a hike to tackle record-high inflation.

“(I am) ready to hike in July — and not just the beautiful Atlas Mountains here in #Morocco,” the Slovak governor wrote on Twitter.

He added he was in the North African country for the annual meeting of the European Bank for Reconstruction and Development (EBRD).

(Reporting By Francesco Canepa; Editing by Toby Chopra)

((@FranCanJourno francesco.canepa@thomsonreuters.com; 004906975651247; Reuters Messaging: francesco.canepa.thomsonreuters.com@reuters.net))

By Anisha Sircar

May 12 (Reuters) – Emerging market currencies slipped on Thursday as the greenback hit its highest level in two decades after hotter U.S. inflation data, while regional shares tumbled to fresh 22-month lows on pressure from stock markets in India and China.

MSCI’s index of emerging market (EM) currencies .MIEM00000CUS resumed a descent that began in early-April, falling 0.6% to return to its weakest level since November 2020 after a breather in its last two sessions.

Inflation pressures in parts of EM are rising, even though U.S. inflation might have peaked, said Natalia Gurushina, EM Fixed Income economist at VanEck.

Data on Wednesday showed U.S. consumer price growth is likely to stay hot for a while. Higher-than-expected inflation lifted the dollar =USD and dragged stocks as it suggests a more robust Federal Reserve response this year. nL2N2X315F

“Some EM central banks will have to keep on hiking – in a sense ‘matching’ the Fed’s hikes – even though EM inflation is driven by exogenous factors, but the problem is that global supply shocks are feeding into core inflation, and this passthrough might be higher than in normal pre-COVID years,” Gurushina added.

Stocks .MSCIEF plunged 2.3% to a 22-month low, dropping eight out of its nine previous sessions.

Indian shares .NSEI, .BSESN dropped nearly 2% and the rupee INR=IN hit an all-time low for a second time this week ahead of domestic retail inflation numbers, with a Reuters poll expecting it to surge to an 18-month high. nL3N2X40XW nL3N2WY21A

China stocks .SSEC, .CSI300 pared gains to close upto 0.4% lower, while the yuan CNY= slipped 0.9% to a 20-month low.

The South African rand ZAR= fell 0.8%, ahead of mining data and after new COVID-19 cases crossed 10,000 for first time since January, stoking fears of a fifth wave. nJ8N2WE008

In Central Europe, the Czech crown EURCZK= bounced 0.2% a day after plumbing two-month lows after Czech Republic President Milos Zeman appointed Ales Michl, a central bank board member who has opposed policy tightening, as the bank’s new governor, signalling a likely end to rate hikes. CEE/

For GRAPHIC on emerging market FX performance in 2022, see http://tmsnrt.rs/2egbfVh

For GRAPHIC on MSCI emerging index performance in 2022, see https://tmsnrt.rs/2OusNdX

For TOP NEWS across emerging markets nTOPEMRG

For CENTRAL EUROPE market report, see CEE/

For TURKISH market report, see .IS

For RUSSIAN market report, see RU/RUB

(Reporting by Anisha Sircar and Lisa Pauline Mattackal in Bengaluru; editing by Uttaresh.V)

((Anisha.Sircar@thomsonreuters.com; Twitter: https://twitter.com/AnishaSircar;))

Adds details on rules and separate comment on the baht

BANGKOK, May 12 (Reuters) – Thailand’s central bank said on Thursday it plans to further relax foreign exchange rules, seeking to help companies more efficiently hedge and manage risks.

The measures would come into effect on Friday and “make overseas transactions easier while simplifying hedging for businesses so there can be more efficient risk management,” ​Assistant Governor Alisara Mahasandana told a virtual briefing.

More measures will come into effect over the next few years, she added.

“We will focus on non-banks by expanding the scope of non-bank FX services and adjusting guidelines for more flexible FX transactions,” she said, noting this would help lower costs.

She said on average such transactions account for 7% of expenses, which is higher than the average in the region.

Separately, Thailand’s central bank said the movement of the baht THB=TH has had limited impact on inflation and the economy, after the currency reached its weakest level for five years against the dollar on Thursday. nL2N2X405R

“The Bank of Thailand is closely monitoring the situation and is ready to take care of the baht if necessary,” Alisara Mahasandana said. nL3N2X4155

(Reporting by Kitiphong Thaichareon and Satawasin Staporncharnchai, and Chayut Setboonsarng; Editing by Martin Petty and Ed Davies)

((chayut.setboonsarng@tr.com, Twitter: @ChayutSet; +66854849033;))

May 12 (Reuters) – Euro zone bond yields fell sharply on Thursday after U.S. inflation data reinforced investors’ concerns over the outlook for growth given the prospects for aggressive Federal Reserve rate hikes.

The U.S. consumer price data, released on Wednesday, showed inflation slowed in April but was still higher than expected, while a narrower reading stripping out volatile food and energy prices rose sharply. nL2N2X315F

That eventually pushed stock markets and bond yields sharply lower, with much of the move coming after the European close, as the focus turned back to the economic toll that aggressive Fed rate hikes could have. nL2N2X32ZQ nL2N2X32KF

On Thursday, that weak sentiment was mirrored in Europe. European stock futures were down over 2%, pointing to a weak open. STXEc1

Bond yields fell sharply led by the longer-end of the yield curve and Germany’s 10-year yield, the benchmark for the bloc, fell as much as 12 bps to 0.875%, its lowest in nearly two weeks. DE10YT=RR

“I think a lot of it is catch up from what happened yesterday, and also there’s still a lot of negative sentiment in the U.S. Treasury curve,” said Lyn Graham-Taylor, senior rates strategist at Rabobank.

The two-year yield, sensitive to interest rate expectations, fell as much as 8 bps to 0.064%, the lowest in three weeks. DE2YT=RR

“The market is able to trade a combination of: the Fed’s very determined to act in the face of high spot inflation, but at the same time, the chances of it achieving a soft landing are pretty minimum, and generally economic growth prospects are getting worse,” Graham-Taylor said.

Money markets meanwhile have trimmed their bets on ECB rate hikes, now pricing in 84 bps of hikes by year-end, compared to 95 bps at the start of the week. ECBWATCH

That has been supportive of Italian debt, a key beneficiary of ECB stimulus, with the closely-watched risk premium over German bonds falling to around 190 bps after rising over 200 bps recently, which was the highest since May 2020.

Its 10-year yield is at 2.80%, down from over 3% last week and was down 9 bps on Thursday. IT10YT=RR, DE10IT10=RR

Italy will raise up to 6.75 billion euros from an auction of three, seven and 30-year bonds. nS8N2V704S

In another auction, Ireland will also raise up to 1.25 billion euros from 10- and 23-year debt. nS8N2R504T

(Reporting by Yoruk Bahceli; Editing by Simon Cameron-Moore)

((Yoruk.Bahceli@thomsonreuters.com; +44 20 7542 7571; Reuters Messaging: yoruk.bahceli@thomsonreuters.com))