Title: Dollar Soars as Putin Ramps Up Tensions; Fed Meeting Looms

Sep 21, 2022 03:03AM ET

By: AnalysisWatch

The U.S. dollar rose in early European trading Wednesday, climbing near a 20-year high as Russian President Vladimir Putin raised tensions over Ukraine, and traders awaited another substantial Federal Reserve interest rate hike.

At 03:00 AM ET, the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% higher at 110.457, close to the two-decade peak of 110.79 reached earlier this month.

Putin also raised the geopolitical temperature, making a thinly veiled threat to use the country's nuclear arsenal to defend his conquests in Ukraine, at the same time accusing the West of practicing "nuclear blackmail" against it.

The euro felt the brunt of the losses, with EUR/USD falling 0.7% to 0.9903, falling close to its lowest level just below 0.99 since near the start of September.

The dollar has also benefited from the widely held expectation that the U.S. Federal Reserve will announce an interest rate increase of at least 75 basis points later Wednesday as it attempts to combat stubbornly high inflation.

That said, a full percentage point hike is not completely out of the question as last week’s consumer price index showed inflation remaining near 40-year highs.

These expectations pushed yields on the 2-year U.S. Treasury notes up to 3.992% overnight, the highest since 2007, while yields on the benchmark 10-year Treasury rose to 3.604%, the highest since 2011.