Dollar hits two-decade high as Putin shakes up FX market ahead of Fed

Dollar hits two-decade high as Putin shakes up FX market ahead of Fed

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  • Dollar index hits two-decade high
  • The euro drops to its lowest level in two decades
  • Putin announces partial troop mobilization for Ukraine
  • Markets assess Fed hawkishness in Powell briefing

LONDON/NEW YORK, Sept 21 (Reuters) – The dollar hit a new two-decade high on Wednesday just ahead of another expected aggressive interest rate hike from the Federal Reserve, as investors fled for protection after the Russian President Vladimir Putin’s decision to mobilize. more troops for the conflict in Ukraine.

Putin on Wednesday called up 300,000 reservists to fight in Ukraine and said Moscow would respond with the might of its entire vast arsenal if the West continued what he called “nuclear blackmail” over the conflict there. Read more

The news sent the dollar index, which measures the value of the greenback against six major currencies, to 110.87. <=USD>its highest level since 2002.

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The dollar index is up almost 16% this year and is expected to see its biggest annual rise since 1981. It last traded at 110.71, up about 0.5% on the daytime.

“Most of the dollar’s movement today is Putin-related,” said Steven Englander, head of G10 global currency research and macro strategy for North America at Standard Chartered in New York. .

“When I look at my chart, the five worst performing currencies are Swedish Krona, Polish Zloty, Czech Koruna, Hungarian Forint and Euro. escalate the conflict in Ukraine and on what limits it puts the weapons they use.”

Dollar index at two-decade high before Fed

European currencies bore the brunt of the sell-off in currency markets as Putin’s comments heightened concerns over the economic outlook for a region already hard hit by Russia’s cut in gas supplies to the EU. Europe.

The euro fell to a two-week low of $0.9885, ahead of two-decade lows hit earlier this month. It was last down 0.7% at $0.9901.

The pound fell to a fresh 37-year low at $1.1304 and was last down 0.5% at $1.1335

Later Wednesday, the Fed is expected to raise interest rates by three-quarters of a percentage point for the third consecutive time and indicate how far and how fast borrowing costs will need to rise to bring inflation under control. Read more

The policy decision, expected at 18:00 GMT, will mark the latest step in a synchronized policy shift by global central banks that tests the resilience of the global economy and countries’ ability to manage exchange rate shocks as the value of the dollar is soaring.

“What the market is looking for is if (Fed Chairman Jerome) Powell says the Fed doesn’t know how far it needs to go and will go as far as it needs to go,” said Standard Chartered Englander.

“If someone asks him if he sees rates going up to 5% and he says he doesn’t see it, but he doesn’t rule it out if it’s necessary to bring inflation down, then that would be really hawkish and mean they’re opening to raise rates in an even higher range than the market anticipates.”

The Australian and New Zealand dollars meanwhile hit multi-year lows. The Australian dollar hit a low of US$0.6655, its lowest since June 2020, while the New Zealand currency fell to US$0.5873, its lowest since April 2020.

Against the battered yen, the dollar rose 0.2% to 143.97, pushing back recent 24-year highs

“It was interesting to me that the dollar/yen fell on news of the announcement, potentially indicating a return to safe-haven yen which has been absent for much of the year,” said Colin Asher, Senior Economist at Mizuho Corporate. Bank.

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Currency rates at 10:42 a.m. (2:42 p.m. GMT)

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Reporting by Dhara Ranasinghe in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by Lucy Raitano; Editing by Edwina Gibbs, Catherine Evans and Mark Heinrich

Our standards: The Thomson Reuters Trust Principles.

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