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HONG KONG  - The dollar hit a new five-year high on the yen on Friday after a strong U.S. inflation report, while the euro struggled to hold its own as a hawkish turn from the European Central Bank was offset by growth risks emanating from the Ukraine crisis.

The greenback rose as high as 116.39 yen in early trade, its best level since January 2017, while sterling was beaten down at $1.3089, having tumbled 0.8% overnight to a 16 month-low.

Data on Thursday showed that U.S. consumer prices surged 7.9% year-over-year in February, in the largest annual increase in 40 years.

The CPI data "basically indicates that the Fed should be hiking rates this month, but it also indicates that they will keep going [with hikes] at least initially," said Rodrigo Catrill, a currency strategist at National Bank of Australia.

Both the Fed and the Bank of Japan have policy meetings next week, but while the Fed is all but certain to hike rates from their pandemic low, the BOJ is set to remain an outlier and hold onto a dovish stance on monetary policy, weighing on the yen.

The dollar has gained 1.3% on the Japanese currency this week.

Both the sterling and euro have been hurt by the impact of the conflict in Ukraine and resulting higher energy prices.

The euro was last at $1.1010 having finished a choppy Thursday 0.8% lower, though in the course of the day it had risen to as high as $1.112 and dropped as low as 1.0975.

"The more hawkish message from the ECB had a temporary upward pressure on the euro but it was very short-lived which tells you that other dynamics are overriding any considerations about what the ECB might do, including news coming from Ukraine," said Catrill.

The ECB said on Thursday it will phase out its stimulus in the third quarter, opening the door to an interest rate hike before the end of 2022 to combat soaring inflation.

It also modestly downgraded its growth forecasts for this year and next, and ramped up inflation expectations, as ECB President Christine Lagarde said the conflict was a "watershed for Europe", which would curb growth but boost inflation.

Talks between Ukraine and Russia's foreign ministers on Thursday made little apparent progress towards ending a war that is now in its third week.

Elsewhere high commodity prices continued to boost the Australian and New Zealand dollars.

The Aussie was at 0.734 having risen 0.49% overnight, while the kiwi was at 0.6854 after a 0.36% overnight gain.

Bitcoin was around $39,000, little changed on the week, despite a volatile few days as prices took a round trip in response to an executive order from U.S. President Joe Biden requiring the government to prepare reports on the future of money.