The US dollar hit multi-year highs against the euro and yen on Tuesday on the growing chance of the Federal Reserve hiking interest rates by mid-year, the prospect of which also hurt stocks and currencies from emerging markets.

The skittish mood spread from Asia to Europe where stocks were down for a second day despite the European Central Bank’s new bond buying campaign continuing to push down the euro and the bloc’s already record-low borrowing costs.

Driving the dollar up was speculation that the Federal Reserve, in contrast, will start lifting interest rates from mid-year after another round of stellar jobs data on Friday and a subsequent chorus of hawkish Fed policymaker comments.

Euro zone meet

The euro’s woes were compounded by worries about Greece as euro zone finance ministers met in Brussels a day after the head of the group, Jeroen Dijsselbloem, urged Athens to “stop wasting time’’ and start implementing reforms.

Selling in the euro had gathered pace again in Europe as a break below a major layer of chart support at $1.0762 to $1.0735 left bears eyeing 1.07 the figure and some mulling potential parity.

The dollar also broke higher on the yen in Asia to reach 122.02, territory not visited since July 2007.

“It is all about the Fed now,’’ said Aurelija Augulyte senior FX strategist at Nordea in Helsinki. “The ECB (bond buying) bias has now been fully digested, but what the market is now trying to do is price in earlier Fed rate hikes.’’

Emerging market currencies

The prospect of rising US yields threatened to draw funds away from emerging markets, causing strains from Brazil to Turkey. The Brazilian real led the rout, having fallen for the sixth straight session.

The pressure spread then through Asia with the South Korean won hitting its lowest since late August 2013 and the Singapore dollar, its lowest since 2010.

Eastern Europe was also heavily in the red. Selling accelerated for Poland’s zloty, Romania’s leu and Hungary’s forint and MSCI’s main emerging market stock index fell 1 per cent, down for its eighth day running.

China consumer prices

The volatility in currencies overshadowed data from China that showed consumer prices rose 1.4 per cent in February compared with the same month last year, although much of the increase was due to seasonal volatility in food prices.

Producer prices continued to slide, underscoring deepening weakness in the economy and intensifying pressure on policymakers to find new ways to support growth.

Shanghai shares had eased 0.5 per cent, though that only unwound a little of Monday's gains. Despite the lower yen, Japan's Nikkei fell 0.8 per cent in late afternoon trade.

Most commodities continued to struggle with the strength of the US dollar. Gold hit a three-month low around $1,159.20 an ounce while copper futures shed 0.9 per cent.

Oil had been putting up some resistance overnight but finally buckled in Europe. Brent crude fell 70 cents to a two-week low of $57.86 a barrel, while US crude dropped back below $50 a barrel to $49.60.

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