By Dhara Ranasinghe and Gertrude Chavez-Dreyfuss
LONDON/NEW YORK, Sept 21 (Reuters) – The dollar climbed on a new two-Decade high on Wednesday just ahead of another expected aggressive rate hike by the US Federal Reserve, as investors fled to safety in a decision by Russian President Vladimir Putin to mobilize More troops for the conflict in Ukraine.
Calling on 300,000 reservists to fight in Ukraine on Wednesday, Putin said Moscow would respond with the might of its entire arsenal if the West continued what he called its “nuclear blackmail” over the conflict there.
The news boosted the dollar index, which measures the value of the dollar six big Currencies to $110.87>, strongest level since 2002.
The dollar index is up nearly 16% this year and is poised for its biggest annual rise since 1981. It last traded at 110.71, to about 00.5% on that day.
“Most dollar moves today are related to Putin,” said Steven Englander, head of G10 global FX research and North America macro strategy at Standard Chartered in New York.
“Looking at my chart, the five worst performing currencies are the Swedish krona, Polish zloty, Czech koruna, Hungarian forint and euro. That’s more of a concern for Putin because of the hints that Russia could escalate the conflict in Ukraine and at what borders he’s targeting the weapons they’re using.”
European currencies bore the brunt of selling in the currency markets as Putin’s comments heightened concerns about the economic outlook for a region already badly hit by Russia’s choke on gas supplies to Europe.
The euro fell to a two-week low of $0.9885 EUR=EBSwithin sight of two-decade lows touched earlier this month. It was last minus 00.7% at $0.9901.
Sterling fell to a fresh 37-year low of $1.1304 EUR=D3and was last down 0.5% at $1.1335BRITISH POUND/
Later Wednesday, the Fed is expected to raise interest rates by three-quarters of a percentage point for the third straight month, signaling how much further and how fast borrowing costs need to rise to tame inflation.
The policy decision, due around 1800 GMT, will mark the latest step in a synchronized policy shift by global central banks that will test the resilience of the global economy and countries’ ability to deal with exchange rate shocks as the dollar strengthens.
“What the market is looking for is whether (Fed Chair Jerome) Powell is saying the Fed doesn’t know how far it needs to go and it will go as far as it needs to go,” the Englishman told Standard Chartered.
“If someone asks him if he sees interest rates at 5% and he says he doesn’t see it but doesn’t rule it out if that’s what’s needed to bring down inflation then that would be really hawkish and means they open rates to an even higher range than the market expects.”
Meanwhile, the Australian and New Zealand dollars fell to multi-year lows. The Aussie dollar CHF=D3 hit a low of US$0.6655, the lowest since June 2020, while the Neuzealand currency NZD=D3 fell on US$0.5873, the lowest level since April 2020.
Against the battered yen, the dollar is up 00.2% at 143.97, Holding the last 24-year highs JPY=EBS
“What was interesting to me was that the dollar/yen slumped on news of the announcement, possibly signaling a return of the yen’s safe-haven references, which were absent for much of the year,” said Colin Asher, Sr Economist at Mizuho Corporate Bank.
=============================================== === ===
Currency bid prices at 10:42 (1442 GMT)
US Close previous session
YTD percent change
= US dollars
World Exchange Rateshttps://tmsnrt.rs/2RBWI5E
Dollar index ahead of Fed at two-decade highhttps://tmsnrt.rs/3So4OxA
(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)
((email@example.com; 646-301-4124; Reuters Messaging: firstname.lastname@example.org))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.