Dollar reaches a two-decade high while sterling once more struggles

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Last Updated on September 28, 2022 by Bitfinsider

On Wednesday (Sep 28), the dollar reached a new two-decade high versus a basket of currencies thanks to rising Treasury yields, while sterling remained close to a record low due to worries about Britain’s drastic tax cuts to boost growth.

In Asian trading, the US dollar index reached a fresh high of 114.68 and was last up 0.42 percent at 114.62.

In the meantime, benchmark US 10-year Treasury yields reached their highest level since 2010 of 4%, topping out at 4.004 percent. The yields for two years were 4.2912 percent.

The Fed’s aggressive attitude was reinforced overnight by Chicago Fed President Charles Evans, St. Louis Fed President James Bullard, and Minneapolis Federal Reserve Bank President Neel Kashkari. Evans stated that the Fed will need to hike interest rates to a range between 4.50 and 4.75 percent.

Sterling lost almost 1% of its value to US$1.0634, reversing a slight 0.4% gain the previous session and continuing its steep decline from its all-time low of US$1.0327 at the beginning of the week.

Huw Pill, the chief economist at the Bank of England, stated overnight that the bank’s “major policy response” to Kwasi Kwarteng’s large tax reduction is likely to be implemented.

To put an end to market rumors of a probable interest rate increase in between meetings, he stressed that the central bank wishes to hold off until its upcoming meeting in November.

On Wednesday, the strengthening dollar drove other currencies to multi-year lows, with the Australian dollar reaching a low of US$0.6389, its lowest level since May 2020. The kiwi dropped by roughly 1% to US$0.55645, which is also its lowest level since March 2020.

The Chinese offshore yuan dropped to a record low of 7.2349 to the dollar in 2011, the year that such information became available.

The Chinese monetary authorities are pushing local banks to use a yuan fixing mechanism they abandoned two years ago in order to guide and protect the fast depreciating currency, a source told Reuters late on Tuesday.

The euro fell 0.4% to US$0.9555, not far from its most recent 20-year low of US$0.9528, and the current flare-up in the gas issue in the euro zone only made things worse for the single currency.

On Tuesday, Europe was looking into claims made by Germany, Denmark, and Sweden that two Russian gas pipelines at the center of an energy dispute had been attacked with serious leaks into the Baltic Sea as a result.

In other markets, the yen last traded at 144.68 to the dollar, barely aided by Japan’s intervention to support the weak currency last week.

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