The dollar strengthened to a 20-year high today after Fed Chairman Jerome Powell signaled that interest rates will be kept higher for longer to reduce inflation.
The index of the exchange rate of the US currency against a basket of other major currencies climbed to 109.48 points.
Despite statements from European Central Bank officials over the weekend on firm monetary policy, which boosted expectations for a very large rate hike in September, the euro fell 0.2 percentage points against the dollar to $0.99415, near 20-year low.
Sterling also fell, falling to $1.1649, a 2.5-year low.
Powell told the central bankers’ annual meeting in Jackson Hole that the Fed would raise interest rates as long as necessary to curb growth and keep them at those high levels “for some time” to reduce inflation.
Money markets reacted by raising bets on a more aggressive rate hike from the Fed in September, with the odds of a three-quarters of a percentage point (75 basis points) increase now at 70%.
The yield on two-year US Treasuries jumped to a 15-year high of 3.49%, boosting the US currency.
Speaking at the Jackson Hole symposium, ECB officials – including Executive Board member Isabelle Schnabel, French central bank chief Villeroy de Gallo and Latvian central bank governor Martins Kazaks – advocated a dynamic monetary policy.
Despite strengthening the possibility of a big ECB interest rate hike in September, the euro is struggling as the energy crisis plaguing Europe raises recession risks.
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