On Wednesday, the dollar surpassed a previous 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 development.
In Asian trading, the US dollar index reached a fresh high of 114.68 and was last up 0.42 percent at 114.62.
Standard US 10-year Treasury yields also increased, reaching a high of 4.004 percent for the first time since 2010. The yields for two years were 4.2912 percent.
“It’s a combination of the UK spillover, where the gilt yields have shot through the roof. There is a small ricochet impact because that has spread to other DM bond markets, according to currency strategist Moh Siong Sim.
In the background, the Fed has been adamant that it will do whatever it takes to reduce inflation.
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 4.5pc and 4.75pc.
After only a slight 0.4 percent rebound the previous session, sterling was down roughly 1 percent to $1.0634. It was still suffering severe losses from its decline to an all-time low of $1.0327 at the beginning of the week.
Huw Pill, the chief economist at the Bank of England, stated tonight that the institution is likely to make a “major policy reaction.”
To put an end to market rumours 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.
According to Carol Kong, senior associate for international economics and currency strategy at the Commonwealth Bank of Australia, “For the immediate term, I think sterling’s going to continue quite weak from here.”
“Basically, there is a confidence issue. Instead of the Bank of England, the UK government will be responsible for finding a solution.
On Wednesday, the strengthening dollar drove other currencies to multi-year lows, with the Australian dollar reaching a low of $0.6389, its lowest level since May 2020. To $0.5565, the kiwi fell by about 1%, matching its lowest level from 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 dropped 0.4 percent to $0.9555, not far from its most recent 20-year low of $0.9528, and the current gas crisis flare-up 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 strikes on two Russian gas pipelines at the centre of an incident had caused significant leakage into the Baltic Sea.
