Dollar hits 20-year high as markets wait longer for higher rates


U.S. dollar banknotes can be seen in this illustration, taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

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LONDON Aug. 29 (Reuters) – The US dollar climbed to a 20-year high against other major currencies on Monday after Federal Reserve Chair Jerome Powell indicated interest rates would be held longer to curb rising inflation.

The dollar index, which measures the currency’s value against a basket of peers, reached a new two-decade high of 109.48.

That left his European counterparts in the doldrums, even as the European Central Bank’s aggressive comments boosted expectations for a super-large rate hike in September.

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The euro fell a quarter of a percent in early European trading at $0.99415 in the face of recent 20-year lows, while the British pound plunged to a 2-1/2 year low.

The London markets were closed for a public holiday.

Powell told the Jackson Hole central banking conference in Wyoming Friday that the Fed would raise interest rates as high as necessary to curb growth, and hold them there “for a while” to push inflation back more than three months. times higher than that of the Fed. 2% target.

“Powell’s comments endorsed the pricing of higher Fed fund rates for a longer period of time,” said Kenneth Broux, currency strategist at Societe Generale. “The assumption that the Fed would start cutting rates in mid-2023 is premature.”

Money markets responded by targeting a more aggressive Fed rate hike in September, with the odds of a 75bp hike now hovering around 70%.

US Treasury yields skyrocketed, with two-year bond yields reaching a 15-year high at around 3.49%, strengthening the greenback.

The dollar rose 0.8% to 138.81 yen, reaching its all-time high since July 21, while the offshore yuan fell to a new two-year low of 6.9321 per dollar.

Sterling fell to a 2-1/2 year low of $1.1649 and last fell 0.5% to $1.1676.

“I think the (US dollar index) will track even higher this week towards 110 points, just as market participants continue to price in more aggressive tightening cycles by major central banks,” said Carol Kong, senior currency associate. strategy and international economics at Commonwealth Bank of Australia.

At the Jackson Hole Symposium, ECB board member Isabel Schnabel, French central bank chief Francois Villeroy de Galhau and Latvian central bank governor Martins Kazaks all called for strong or significant policy action.

Even as the potential for a major ECB rate hike rises in September, the euro has struggled as an energy crisis in the bloc increases recession risk. Russian state energy giant Gazprom (GAZP.MM) is expected to stop supplying natural gas to Europe from August 31 to September 2. read more

And while risk-off sentiment gripped global markets, the Australian and New Zealand dollars also collapsed under selling pressure.

The Australian dollar fell to $0.6838, its lowest level since July 19, while the kiwi hit its lowest since mid-July at $0.61.

In cryptocurrencies, Bitcoin recovered some ground but remained below the $20,000 level it had plunged below the weekend. read more

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Reporting by Dhara Ranasinghe; additional reporting by Rae Wee in Singapore; adaptation by Christina Fincher

Our standards: The Thomson Reuters Trust Principles.

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