The dollar hit a new two-decade high against a basket of currencies
The dollar hit a new two-decade high against a basket of currencies on Wednesday on rising Treasury yields, while the pound languished near a record low on concerns over sweeping tax cuts of Britain to stimulate growth.
The US Dollar Index hit a new high of 114.68 in Asian trade and was last up 0.42% at 114.62.
Read more: Where are the dollars going?
Meanwhile, benchmark 10-year US Treasury yields hit 4% for the first time since 2010, hitting 4.004%. Two-year yields stood at 4.2912 pc.
“It’s a combination of fallout from the UK… where gilt yields have gone ballistic. And that’s trickled down to other DM bond markets, so there’s a bit of a ripple effect,” said Moh Siong Sim, currency strategist at Bank of Singapore.
“And of course…that’s against the backdrop of a very determined message from the Fed to do whatever it takes to bring inflation down.”
Chicago Fed President Charles Evans, St. Louis Fed President James Bullard, and Minneapolis Federal Reserve Chairman Neel Kashkari reiterated the Fed’s hawkish stance overnight, Evans stating that the central bank will have to raise interest rates to a range between 4.5% and 4.75%. pc.
The pound fell almost 1% to $1.0634, reversing a marginal 0.4% gain in the previous session and still suffering heavy losses after falling to lows. historically low of $1.0327 at the start of the week.
Bank of England chief economist Huw Pill said overnight that the central bank is likely to make a “significant policy response” to finance minister Kwasi Kwarteng’s huge tax cuts.
Read more: Drowning of the Pakistani rupee against the US dollar
But he added that the central bank wanted to wait for its next scheduled meeting in November before acting, quashing market speculation that interest rates could rise between meetings.
“In the short term, I think the pound is going to stay quite weak from here,” said Carol Kong, senior associate for international economics and currency strategy at Commonwealth Bank of Australia.
“It’s basically a crisis of confidence. It will be up to the British government to solve this problem… rather than the Bank of England.
The stronger dollar pushed other currencies to multi-year lows on Wednesday, with the Aussie hitting a low of $0.6389, its lowest since May 2020. The kiwi was down around 1pc at $0.5565, as was its lowest since March 2020.
China’s offshore yuan fell as low as 7.2349 to the dollar, the lowest level since data became available in 2011.
A source said Reuters late Tuesday as China’s monetary authorities ask local banks to revive a peg for the yuan they abandoned two years ago as they seek to steer and defend the rapidly weakening currency.
The euro lost 0.4pc to $0.9555, not far from its recent 20-year low of $0.9528, as the latest surge in the eurozone gas crisis added to the bleak outlook for the single currency. .
Europe was investigating on Tuesday what Germany, Denmark and Sweden said were attacks that caused major leaks into the Baltic Sea from two Russian gas pipelines at the center of an energy standoff.
Elsewhere, the yen last bought 144.68 to the dollar, helped little by an intervention from Japan to support the fragile currency last week.
“What would really change the value of the yen would be if the BOJ dropped or reset its yield curve control policy,” said Pablo Calderini, chief investment officer at hedge fund Graham Capital.
“As long as you keep a 4% yield differential, it’s going to be really hard to see any significant appreciation in the yen.”