By Wayne Cole

SYDNEY (Reuters) – The dollar was nearing heights not seen in two decades on Thursday as the energy crisis in Europe hamstrung the euro, while the yen was undercut by expectations the Bank of Japan would stick to its super-easy policies.

Measured against a basket of currencies, the dollar index had reached a five-year top of 103.28 and a further push above 103.82 would see it to levels not visited since late 2002.

The euro was pinned at $1.0553, having hit a five-year low of $1.0515 on Wednesday. The single currency has fallen 4.6% so far in April and is heading for its worst month since early 2015.

The currency is now perilously close to huge chart support levels stretching from $1.0500 down to a trough from 2017 at $1.0344. A break would take it to depths not seen since 2002 and risk a damaging decline below parity.

The slide only adds to Europe’s economic troubles as it raises the cost of energy priced in dollars, just as natural gas costs soar on Russia’s move to cut off Poland and Bulgaria.

“This appears to be the first overt act of energy warfare,” warned Helima Croft, head of global commodity research at RBC Capital Markets.

“The question now is whether the cut-off will extend to other major importers in what could quickly become a stark test of European resolve to support Ukraine in the face of surging energy prices and rising recession risks.”

Such risks could also make the European Central Bank reluctant to tighten aggressively, leaving it lagging far behind the Federal Reserve.

Markets are wagering the Fed will hike by 50 basis points in May, June and July, and ultimately lift rates to around 3.0% by the end of the year. The ECB is seen maybe reaching 0.5% by Christmas.

The Bank of Japan (BOJ) is not even close to tightening as it doggedly buys bonds to keep yields near zero.

The central bank holds a policy meeting on Thursday and is widely expected to reaffirm its yield guidance, even as it raises the outlook for inflation.

The diverging outlook on rates has seen the dollar resume its climb on the yen to reach 128.44 too be within spitting distance of its recent 20-year peak of 129.43.

One possible pot hole for the dollar will be data on U.S. gross domestic product due later Thursday.

While the market forecast is for growth of 1.1%, the risk is to the downside after the U.S. trade deficit blew out to a record and implied a large drag from net exports.

Analysts at NatWest Markets now fear GDP may have actually contracted by an annualised 1.3% in the first quarter. Any negative reading could temper the dollar’s ascent, if only temporarily.

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