U.S. dollar bills are seen in this illustration July 17, 2022. REUTERS/Dado Ruvic/Illustration
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LONDON, Aug 29 (Reuters) – The dollar soared on Monday, briefly climbing to new 20-year highs against a basket of other currencies, as Federal Reserve Chairman Jerome Powell indicated that interest rates ‘interest would stay higher for longer to reduce uncomfortable inflation.
The dollar index, which measures the currency’s value against a basket of peers, climbed to a new two-decade high of 109.48 before retreating slightly as the European session wore on.
It was about 0.5% firmer against the Japanese yen, while China’s yuan breached the key 6.9 per dollar threshold and the British pound hit a fresh two-year low and a half
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The euro managed to regain some ground and was last up 0.3% at $0.9993 as comments from the European Central Bank raised expectations of a sizeable rate hike in September Read more
London’s markets were closed for a public holiday.
Powell told the central bank conference in Jackson Hole, Wyoming, on Friday that the Fed would raise rates as high as necessary to curb growth and keep them there “for some time” to reduce inflation that is more than three times that of the Fed. 2% target.
“Powell’s comments backed the price of 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 increased bets for a more aggressive Fed rate hike in September, with the odds of a 75 basis point hike now around 70%. U.S. Treasury yields soared, with two-year bond yields hitting a 15-year high of around 3.49%, bolstering the greenback.
Dollar index at 20-year highs, yields soar
The dollar rose 0.54% to 138.43 yen, after hitting its highest since July 21.
The onshore yuan ended domestic trade at 6.9210 per dollar, the weakest close since Aug. 20, 2020, while the offshore yuan fell to a new two-year low of 6.9325 per dollar.
Sterling fell to a 2½-year low of $1.1649 and was last down 0.25% at $1.17005. Read more
Expectations for a bigger rate hike in September in the eurozone also rose. ECB council member Isabel Schnabel warned on Saturday that central banks risk losing public confidence and must act forcefully to curb inflation, even if it drags their economies into recession.
“Central banks have no interest in being more than hawkish right now, given inflation, so they will raise rates aggressively,” said Nordea chief analyst Jan von Gerich.
Still, the euro was also held back by an energy crisis in the bloc that raises recession risks. Russian state energy giant Gazprom ( GAZP.MM ) is expected to cut off natural gas supplies to Europe from Aug. 31 to Sept. 2. read more
As risk-on sentiment gripped global markets, the Australian dollar fell to $0.6838, its lowest since July 19, while the Kiwi dollar hit its lowest since mid-July to $0.61.
In cryptocurrencies, Bitcoin regained some ground, but remained below the $20,000 level that it hit over the weekend. Read more
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Reporting by Dhara Ranasinghe; Additional reporting by Rae Wee in Singapore; Editing by Christina Fincher and Jan Harvey
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