On Monday, the U.S. dollar increased globally, momentarily pushing the euro back below parity as investors stayed away from riskier investments due to mounting concerns that interest rate increases in the US and Europe intended to fight inflation would hurt the global economy.
- Against a gloomy environment, the common currency again falls below parity.
- Russian gas supply cuts are putting pressure on the euro
- Yuan drops to an almost two-year low as PBOC loosens policy once more
The dollar was 0.5% higher against a basket of currencies at 108.71, not far from the two-decade high of 109.29 reached in mid-July.
Prior to the Federal Reserve’s Jackson Hole, Wyoming, symposium this week, several Federal Reserve officials maintained their aggressive monetary tightening stance, giving the dollar support in recent sessions.
The most recent of these individuals, Thomas Barkin, president of the Richmond Fed, stated on Friday that there was an “urge” among central bankers for more rapid, front-loaded rate increases.
[quotation name=’Thomas Barkin’] “It’s risk being taken off the table after the market got a reality check from last week’s Fed speakers that an imminent dovish pivot is off the cards,” said Michael Brown, head of market intelligence at Caxton in London.
“With investors now clearly expecting a relatively hawkish message from Fed Chair (Jerome) Powell at Jackson Hole on Friday, it’s a perfect cocktail of risk-aversion and a hawkish Fed for the greenback to bound higher, especially when growth worries, especially in Europe, continue to mount.[/quotation]
Following Russia’s late-Friday announcement of a three-day suspension of European gas imports through the Nord Stream 1 pipeline at the end of this month, the euro dropped. Investors are concerned that the suspension may worsen the oil situation, which has already put pressure on the dollar.
According to Bundesbank President Joachim Nagel, rates at the European Central Bank must continue to rise even though a recession in Germany is becoming more probable because inflation will continue to be uncomfortably high through 2023.
The euro temporarily fell below $1 for the first time since July 14 as a result of the weakness. The euro was last trading at $0.99715, down 0.7%.
[quotation] “0.9950 seems to be the pivotal level, as that’s the prior low, if that gives way then we could see significant further losses, especially with the ECB’s window to tighten policy rapidly slamming shut”. [/quotation]
In addition to last week’s easing measures, China’s central bank cut its benchmark lending rate and mortgage reference rate on Monday, sending the yuan to its lowest level in nearly two years. Beijing is stepping up efforts to revive an economy that has been hampered by a property crisis and a rise in COVID-19 cases.
The dollar was 0.5% stronger at 6.8621 when compared to the offshore yuan.
On Monday, the pound dropped to its lowest level versus the dollar since mid-July as rising energy prices and summer of strikes brought attention to the UK’s cost of living crisis and heightened concerns of a further slowdown in the economy.
The pound was recently trading at $1.1781 down 0.43%, just missing the mid-July low of 1.1761 that was reached in the vicinity of 2-1/2 years.
In terms of cryptocurrencies, bitcoin was down roughly 0.92% at $21,316 due to market-wide risk aversion.