NEW YORK, Aug 30 ― The dollar touched a fresh 20-year high yesterday, lifted by hawkish comments by Federal Reserve Chair Jerome Powell, but was kept in check as the euro was boosted by growing expectations for European Central Bank (ECB) rate hikes.
The dollar index, which measures the currency's value against a basket of peers, hit 109.48 early in the session, a level not seen since September 2002.
The greenback extended gains from Friday, when Powell told the Jackson Hole central banking conference in Wyoming the Fed would raise rates as high as needed to restrict growth, and keep them there “for some time” to lower inflation running at more than three times the Fed's 2 per cent goal.
“The Fed chairman last week sounded really hawkish, and that pretty much torpedoed the notion of a policy pivot early next year,” said Joe Manimbo, senior market analyst at Convera.
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 per cent. US Treasury yields soared, with two-year bond yields hitting a 15-year high at around 3.49 per cent.
Traders are looking ahead to September 2, when the August US employment report will be released, providing one of the last major looks at the economy's health in the face of rising rates and stubbornly high inflation before the Fed's next policy meeting.
The euro clawed higher, helped by comments from a European official that pointed to a possible 75-basis-point hike at the September 8 ECB meeting.
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.
“The euro is stealing some of the dollar's thunder and that's on the view that the ECB may match Fed's gigantic rate hike with one of its own next month,” said Manimbo.
The euro was last up 0.29 per cent, but still remained below parity with the dollar at US$0.9993 (RM4.49).
“Central banks have no interest in being anything but hawkish right now, given inflation, so they will hike rates aggressively,” said Nordea chief analyst Jan von Gerich.
A comment by German Economy Minister Robert Habeck that he expects gas prices to fall soon, with Germany making progress on its storage targets, also might have supported the euro.
The dollar index, mainly based on the euro's rise, was down 0.348 per cent at US$108.8 at 3.20pm Eastern time (1920 GMT).
The greenback was up 0.78 per cent against Japan's yen at ¥138.76.
Sterling fell to a 2-1/2-year low of US$1.1649 in thin trading on a UK public holiday, versus the greenback and was last down 0.23 per cent at US$1.1703.
In cryptocurrencies, bitcoin edged higher to trade back above the US$20,000 level. ― Reuters
