Dollar touches 20-year high, but kept in check in euro, with focus on interest rates By Reuters

© Reuters. FILE PHOTO: US dollar banknotes are shown in this illustration taken on July 17, 2022. REUTERS/Dado Rovich/Illustration

Written by John McCrank and Dara Ranasinghe

NEW YORK (Reuters) – The dollar touched a 20-year high on Monday, boosted by Federal Reserve Chairman Jerome Powell’s hawkish comments, but the euro remained in check, buoyed by the European Central Bank’s rising expectations. ) Rising prices.

The pair, which measures the value of the currency against a basket of peers, climbed to a two-decade high of 109.48 before pulling back.

The dollar rose 0.73% against the Japanese yen, while the British pound hit a new low in two-and-a-half years in thin trade, with the UK on a public holiday.

Powell told the Jackson Hole Central Banking Conference in Wyoming on Friday that the Fed will raise interest rates as high as needed to constrain growth, and keep them there “for some time” to bring down inflation that has reached more than three times Fed rates. 2% target.

“Powell’s comments favored higher rate pricing on the fed funds for a longer period of time,” said Kenneth Brooks, currency analyst at Societe Generale (OTC). “The assumption that the Fed will start cutting rates in the middle of 2023 is premature.”

Money markets boosted their bets on a more aggressive Fed rate hike in September, with chances of a 75 basis point hike now at around 70%. US Treasury yields rose, with two-year bond yields hitting a 15-year high of around 3.49%.

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

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

European Central Bank Governing Council member Isabelle Schnabel warned on Saturday that central banks risk losing public confidence and must act aggressively to curb inflation, even if it drags their economies into recession.

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

A comment by German Economy Minister Robert Habeck that he expects gas prices to drop soon, with Germany making progress on storage targets, may have supported the euro as well.

The dollar index fell after hitting its highest level in 20 years due to the rise of the euro and fell 0.403 percent to 108.74 dollars at 10:40 am (1440 GMT).

The British pound fell to a two-and-a-half-year low of $1.1649 against the US dollar, and was last down 0.14% at $1.1713.

In cryptocurrencies, Bitcoin regained some ground to trade back above the $20,000 level.

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