Dollar hits 20-year high, but euro keeps it in check as rates come under fire

Dollar hits 20-year high, but euro keeps it in check as rates come under fire
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US dollar bills are seen in this illustration taken on 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, buoyed by hawkish comments from Federal Reserve Chairman Jerome Powell, but was held in check by the euro, which was supported by the growing expectations of Central Europe Bank rate hikes (ECB).

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.

The greenback was up 0.73% against the Japanese yen, while sterling hit a fresh 2-1/2-year low in light trade with the UK on a bank holiday.

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Powell said Friday at the central banking conference in Jackson Hole in Wyoming that the Fed would raise rates as much as needed to restrain growth and keep them there “for some time” to reduce inflation, which is tripling the rate of the Fed. target of 2%. read more

“Powell’s comments supported 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 raised bets on a more aggressive rate hike from the Fed in September, with the chances of a 75 basis point hike now looking around 70%. US Treasury yields soared, with two-year bond yields hitting a 15-year high of around 3.49%.

The euro worked its way higher, helped by “ECB comments and rumors, including the contemplation of a 75bp hike at the ECB meeting on September 8,” said Derek Holt, head of capital markets economics at Scotiabank. .

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

Isabel Schnabel, a member of the ECB board, 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. read more

“Central banks have no interest in being anything but aggressive at the moment, given inflation, so they will hike rates aggressively,” Nordea chief analyst Jan von Gerich said.

A comment from German Economy Minister Robert Habeck that he expects gas prices to decline soon, with Germany advancing on its storage targets, may also have supported the euro. read more

The dollar index, after reaching its highest level in 20 years, fell, mainly due to the appreciation of the euro, and fell 0.403% to $108.74 at 10:40 am (14:40 GMT).

Sterling fell to a two-and-a-half-year low of $1.1649 against the dollar and was down 0.14% at $1.1713. read more

In cryptocurrencies, bitcoin recovered some ground to trade back above the $20,000 level. read more

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

Our standards: The Thomson Reuters Trust Principles.

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