Dollar touches fresh 20-year high

US currency, however, kept in check by euro with ECB rate in focus

NEW YORK:

The US dollar touched a fresh 20-year high on Monday, fuelled by hawkish comments by Federal Reserve Chair Jerome Powell, but was kept in check by the euro, which was supported by growing expectations for European Central Bank (ECB) rate hikes.

The dollar index, which measures the currency’s value against a basket of peers, scaled a fresh two-decade peak of 109.48 before retreating.

The greenback was up 0.73% against Japanese yen, while Britain’s pound notched a fresh 2-1/2-year low in thin trading, with the UK on a public holiday.

Powell told the Jackson Hole central banking conference in Wyoming on Friday that the Fed would raise rates as high as needed to restrict growth, and would keep them there “for some time” to bring down inflation that is running at more than three times the Fed’s 2% goal.

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

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

The euro clawed its way higher, helped by “ECB comments and rumours including contemplation of a 75bps hike at the September 8 ECB meeting,” said Scotiabank Head of Capital Markets Economics Derek Holt.

The euro was last up 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 trust and must act forcefully to curb inflation, even if that drags their economies into a recession.

 

Published in The Express Tribune, August 30^th, 2022.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.