Title: Dollar Soars to New 20-Year High; Risk Sentiment Retreats
September 28, 2022 02:56 AM ET
The U.S. dollar, considered a safe haven, climbed to a fresh 20-year high in early European trading on Wednesday as more hawkish comments from the Fed and rising Treasury yields stoked fresh recession fears.
At 02:55 AM ET, the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.5% at 114.597, having earlier hit a fresh two-decade high of 114.653.
The U.S. Federal Reserve has made it clear that fighting rising inflation is its most important task at the moment, and it will continue to raise interest rates sharply even if it could plunge the nation's economy into recession.
This message was reinforced overnight by Charles Evans, president of the Chicago Fed; James Bullard, president of the St. Louis Fed; and Neel Kashkari, president of the Minneapolis Federal Reserve Bank, with Bullard saying that interest rates would need to remain at higher levels for some time to ensure that we have the inflation problem under control.
Those comments sent 10-year U.S. Treasury bond yields above 4% for the first time since 2010 before they fell back to their current level of 3.982%.
The International Monetary Fund openly criticized the new economic strategy on Tuesday, saying, "Given the heightened inflationary pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not conflict with monetary policy."
The slump in sterling prompted Bank of England Chief Economist Huw Pill to say Tuesday that the central bank is likely to make a "significant" rate hike at its next meeting in November.
This followed allegations of sabotage against Moscow after large amounts of gas leaked into the Baltic Sea from two Russian gas pipelines at the center of an energy pact.
Consumer sentiment in Germany is expected to fall to a new record low in October. GfK forecast Wednesday that its consumer confidence index would fall to 42.5 next month from a downwardly revised 36.8 in September