The dollar spiked to a 20-year high on comments from Federal Reserve Chairman Jerome Powell on aggressive monetary tightening. However, the rally was hindered by the euro also strengthening by the market’s growing expectation that the European Central Bank (ECB) will raise interest rates.
The Dollar index (DXY) – which compares the USD against a basket of major partner currencies – on August 29 surged to a new high not seen in two decades, at 109.48, before falling. mild at the end of the session.
The greenback gained 0.73% against the Japanese yen, while the British pound fell to a 2.5-year low as the UK market entered the holiday season.
At the Jackson Hole Central Bank Conference in Wyoming on Friday, Mr. Powell said that the Fed would raise rates higher, if needed, to limit growth and would keep (interest rates) there.” for a while” to reduce inflation – which is more than triple the Fed’s 2% target.
Kenneth Broux, currency strategist at Societe Generale, said: “Mr. Powell’s comments suggest that the Fed has been in favor of raising the deposit rate for quite some time” and “Assumes that the Fed will start it” a rate cut in mid-2023 is too early.”
Money markets raised their forecast that the Fed will raise interest rates sharply in September, with a 70% chance of a 75 basis point increase. Yields on U.S. Treasuries also jumped in the last session, with the two-year yield hitting a 15-year high of around 3.49%.
Derek Holt, Scotiabank’s head of capital markets economics, said the euro rose in the past session thanks to “ECB comments and rumours, including anticipation of a rate hike also at 75 points. percent at the next ECB meeting on September 8”.
The euro ended August 29 by Vietnamese time up 0.34% against the dollar, but still below parity, at $0.99985.
ECB board member Isabel Schnabel warned on Saturday that central banks risk losing public confidence and must act aggressively to contain inflation, even if it drags their economy into recession.
“Central banks have no interest other than tightening monetary policy amid inflation, so they will raise interest rates aggressively,” said Nordea chief analyst Jan von Gerich.”
At the same time, comments by German Economy Minister, Robert Habeck, that he expects gas prices to fall soon, with Germany making progress on its storage target, may also have supported the euro’s rise.
The DXY Index, after hitting a 20-year high, has fallen again, mainly due to the strengthening euro. At the end of August 29, Vietnam time, DXY fell 0.403% to 108.74 USD.
The pound fell to a 2.5-year low at $1.1649/GBP, before ending up 0.14% lower at $1.1713.
Most Asian currencies and stocks fell against the USD in the session on August 29 due to Mr. Powell’s comment. China’s renminbi fell below the important level of 6.9 CNY/USD at the close of the session
The People’s Bank of China (PBOC) set the reference rate at 1 USD or 6.8698 CNY/USD, a slight decrease of 212 pips, or 0.31%, from the previous day. On the free market, the yuan rose 101 pips to 6.8799 yuan, beating market expectations according to a Reuters survey.
This August, the yuan has lost more than 2.5% against the dollar, becoming the biggest monthly decline since April, when China’s strict blockade including Shanghai City, sparked concerns about the growth rate of the world’s second largest economy.
In the crypto market, Bitcoin price has recovered some ground to trade back above $20,000.
Gold prices reversed gains as the dollar’s rally was losing momentum, pushing bullion prices to a one-month high.
Spot gold price as of the end of August 29 in Vietnam time increased 0.3% to 1,742.83 USD/ounce. Prior to that, the price hit its lowest level since July 27, at $1,719.56. December gold futures rose 0.2 percent to $1,752.90.
RJO Futures senior market strategist Bob Haberkorn said: “Gold sold off after Mr. Powell’s speech, and has now regained some momentum as investors hunted for a bit… Gold will soon start to trade in a tight range until further clues come from the Fed.”
Gold is seen as an inflation hedge, but the appeal of non-yielding assets fades amid a high interest rate environment.
References: Refinitiv, Coindesk