October 3, 2022
Dollar hits 20-year high after Putin calls in more troops

The dollar hit a new 20-year high on Wednesday when President Vladimir Putin said Russia’s armed forces would call in reserve troops, a move that is expected to prolong the war in Ukraine.

An index measuring the greenback against six peers rose 0.6 per cent in early London deals to hit the highest level since 2002. The pound fell 0.4 percent to $1.133 and the euro shed 0.7 percent to consolidate below par at $0.99. The MSCI index of emerging market currencies fell 0.3 per cent.

The dollar is widely regarded as a haven currency in times of geopolitical tensions and economic tensions.

“The dollar has maintained decent momentum so far this week, benefiting largely from safe-haven demand as risk sentiment remains quite fragile,” said Francesco Pesol, FX strategist at Dutch bank ING.

Japan’s yen, which often moves as domestic investors brought home during a period of market turmoil, rose 0.3 percent to 143.33 against the dollar on Wednesday.

Victoria Scholar, head of investment at fund supermarket Interactive Investor, said Putin’s address was to “boost safe-haven demand” for the yen.

“The yen is no longer performing its function as a distinctive safe-haven asset amid this year’s global economic uncertainty due to the rising interest rate differential between Japan and other economies, which will instead use currencies such as the US dollar,” Scholar said. stands by.”

He said a combination of haven demand and the Fed’s expected rate hike is driving demand for the dollar against most major currencies.

Given that the dollar is rallying more aggressively against the euro than the pound, the Bank of England is expected to follow the Fed with an equally sharp rate hike on Thursday. Interest rate differential attraction after dollar Fed is only likely to last a day against the pound if we see a similar [0.75 percentage point] Hike from the Bank of England.”

Equity traders in Europe braced themselves for a bumpy session on Tuesday following losses in the US, which was followed by broader losses in Asian stocks.

The FTSE 100 was up 0.6 per cent at midday in London, while the regional StockX Europe 600 gauge was down 0.3 per cent.

Germany’s DAX and France’s CAC 40 are trading down around 0.2 per cent, partially recovering from weak levels earlier in the session.

The line chart of the Dollar Index is showing an uptrend in the US Dollar

Hong Kong’s Hang Seng index lost 1.8 percent. Japan’s Topix fell 1.4 per cent, China’s CSI 300 lost 0.7 per cent and South Korea’s Kospi lost 0.9 per cent.

On Wall Street on Tuesday, the S&P 500 was down 1.1 percent in a fall that saw all key areas of the stock market fall during the day.

Large moves in US government bond yields weighed on equities ahead of the conclusion of the Federal Reserve’s latest meeting on Wednesday, which is expected to deliver a third consecutive rise of 0.75 percentage points.

The yield on the 10-year US Treasury note hit an 11-year high of 3.6 per cent on Tuesday, while the yield on the policy-sensitive two-year note hit a 15-year high of 3.99 per cent. On Wednesday, both yields fell 0.04 percentage points to 3.53 per cent, a 10-year low. As bond yields rise, their prices fall.

Investors will pay close attention to updated forecasts of interest rates by Fed officials — known as the “dot plot.”

The new set of projections, for the first time since June, will also include officials’ estimates for inflation, unemployment and growth.

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