The US dollar climbed in early European trade Thursday on rising anticipation of more aggressive Federal Reserve interest rate rises, with the Japanese yen taking a beating.
The Dollar Index, which monitors the dollar against a basket of six other currencies, was 0.4% higher at 109.040 at 03:15 ET (07:15 GMT), not far from the two-decade high of 109.48 reached at the start of the week.
Because the economy is doing well and Fed members have been saying hawkish things for a while, more and more people think that the Fed will raise interest rates significantly at their meeting in September.
Related: Asia stocks wobble into September as the dollar surges.
The ADP employment report released on Wednesday showed a decrease in the rate of hiring in the U.S. private sector in August, but the 132,000 increase was still a strong level. The previous JOLTS survey on job postings indicated ongoing labour market momentum, putting Friday’s official employment report squarely in focus.
Since Fed Chair Jerome Powell said last week that the Fed’s “main goal” was to get inflation pressures down to 2%, people are more likely to expect another big rise.
Cleveland Fed President Loretta Mester stated Wednesday that the central bank has to boost its benchmark rate to 4% by early next year, from the current target range of 2.25%-2.5%, and hold it there for some time to help calm inflation.
As a result, US Treasury rates have risen, with the two-year Treasury yield reaching a high of 3.51%, the highest since late 2007.
In contrast, Japanese policymakers have made it plain that interest rates will not be rising anytime soon. Because of the interest rate differentials between Japan and the United States, the USD/JPY rose 0.3% to 139.38, slightly below the 24-year high of 139.69 reached in early Asia trade.
In other news, the EUR/USD fell 0.3% to 1.0023 because of the strong dollar, but it stayed above parity because the European Central Bank is expected to raise interest rates by a huge 75 basis points next week after Eurozone CPI rose to a record 9.1% in August.
“Gas prices and the European mood are set to undergo a big stress test as the Nord Stream pipeline is shut down for repair,” ING analysts wrote in a report. “At this point, it’s best not to get too excited about a recovery in the European currency.”
GBP/USD slid 0.3% to 1.1583, barely above a record two-and-a-half-year low of 1.1569, as the UK economy enters what the Bank of England predicts would be a lengthy recession.
Related: The dollar declines; Eurozone inflation data is in the spotlight.
Also, on Wednesday, former Deputy Governor of the Bank of England Charlie Bean said that investors are starting to see UK assets as more risky because potential future Prime Minister Liz Truss has said she wants to cut taxes and spend more.
USD/CNY went up 0.2% to 6.9015. The yuan fell because a private poll showed that Chinese industrial activity dropped in August, which was the same as what the government said on Wednesday.
