The dollar is rising to its highest level in two decades, and the pound is on alert again

The dollar is rising to its highest level in two decades, and the pound is on alert again

By Ray Wei

SINGAPORE (Reuters) – The dollar hit a two-decade high against a basket of currencies on Wednesday on rising Treasury yields, while sterling languished near a record low on concerns about Britain’s drastic tax cuts to spur growth.

It hit a new high of 114.68 in Asian trade and eventually rose 0.42% to 114.62.

Meanwhile, the benchmark index rose to 4% for the first time since 2010, topping at 4.004%. The two-year return was 4.2912%.

said Moh Seong Sim, currency strategist at the Bank of Singapore.

“And of course…this is against the background of a very firm message from the Federal Reserve to do whatever it takes to bring down inflation.”

Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Minneapolis Fed President Neil Kashkari reiterated the Fed’s hawkish stance overnight, with Evans saying the central bank would need to raise interest rates to Range between 4.50% and 4.75%.

The British pound fell nearly 1% to $1.0634, reversing its marginal gains of 0.4% in the previous session and still suffering deep losses after dropping to an all-time low of $1.0327 at the start of the week.

BoE Chief Economist Howe Bell said overnight that the central bank was likely to provide a “significant policy response” to the massive tax cuts imposed by Chancellor of the Exchequer Kwasi Koarting.

But he added that the central bank wants to wait until its next meeting in November before taking such a step, eliminating market speculation about a possible rate hike between meetings.

“In the short term, I think the pound will remain very weak from here,” said Carol Kong, senior associates for international economics and currency strategy at the Commonwealth Bank of Australia (OTC).

“It is basically a crisis of confidence. It will be up to the UK government to solve this… rather than the Bank of England.”

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The strong dollar pushed other currencies to multi-year lows on Wednesday, reaching as low as $0.6389, the lowest since May 2020. The dollar lost nearly 1% to $0.55645, its lowest level since March 2020.

The Chinese fell as much as 7.2349 against the dollar, the lowest level since this data became available in 2011.

A source told Reuters late on Tuesday that China’s monetary authorities are asking local banks to revive the yuan’s peg they abandoned two years ago as they seek to guide and defend the rapidly weakening currency.

The euro lost 0.4% to $0.9555, not far from a 20-year low of $0.9528, with the escalation of the latest gas crisis in the eurozone adding to the bleak outlook for the single currency.

Europe is investigating on Tuesday what Germany, Denmark and Sweden said were attacks that caused major leaks in the Baltic Sea from two Russian gas pipelines in the midst of an energy crisis.

Elsewhere, the yen last bought 144.68 against the dollar, not helped by Japan’s intervention to prop up the fragile currency last week.

โ€œWhat will really change the value of the yen will be if the BoJ abandons or resets the yield curve control policy,โ€ said Pablo Calderini, chief investment officer at hedge fund Graham Capital.

โ€œAs long as you keep the spread at 4%, it will be really hard to see a significant appreciation in the value of the yen.โ€

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