Dollar hits 20-year high but held in check by euro as rates take center stage

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US dollar banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration

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NEW YORK, Aug 29 (Reuters) – The dollar hit a new 20-year high on Monday, fueled by hawkish comments from Federal Reserve Chairman Jerome Powell, but was kept in check by the euro, which was supported by growing expectations for Central Europe. Increase in bank rates (ECB).

The dollar index, which measures the value of the currency against a basket of peers, hit a new two-decade high of 109.48 before falling back.

The greenback was up 0.73% against the Japanese yen, while the British pound hit a fresh 2.5-year low in tight trading amid the UK bank holiday.

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Powell told the central bank conference in Jackson Hole, Wyoming, on Friday that the Fed would raise rates as high as needed to restrain growth and hold them “for a while” to bring inflation down, which is over three times that of the Fed. Target 2%. Read more

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

Money markets stepped up bets for a more aggressive Fed rate hike in September, with the odds of a 75 basis point hike now around 70%. US Treasury yields soared, with two-year bond yields hitting a 15-year high at around 3.49%.

The euro rose higher, helped by “comments and rumors from the ECB, including the possibility of a 75 basis point hike at the ECB meeting on September 8”, said Derek Holt, Head of Financial Markets Economics at Scotiabank.

The euro last appreciated 0.34% against the dollar, but remained below parity at $0.99985.

ECB board member Isabel Schnabel warned on Saturday that central banks risk losing public confidence and must act forcefully to rein in inflation, even if it drags their economies into recession. Read more

“Central banks have no interest in being anything but hawkish right now, given inflation, so they will raise rates aggressively,” Nordea chief analyst Jan von Gerich said. .

A comment by German Economy Minister Robert Habeck that he expects gas prices to fall soon as Germany makes progress on its storage targets may also have supported the euro. Read more

The dollar index, after hitting its highest level in 20 years, retreated, mainly due to the rise in the euro, and fell 0.403% to 108.74 dollars at 10:40 a.m. (1440 GMT).

The British pound fell to a 2.5-year low at $1.1649 against the greenback and was last down 0.14% at $1.1713. Read more

In cryptocurrencies, bitcoin recovered ground to climb back above the $20,000 level. Read more

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Reporting by John McCrank in New York and Dhara Ranasinghe in London; Editing by Christina Fincher, Jan Harvey and Nick Macfie

Our standards: The Thomson Reuters Trust Principles.

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