London (Reuters) – On Monday, fears of a global economic slowdown and bets on steep interest rate hikes by the U.S. Federal Reserve helped the safe-haven dollar reach new 20-year highs against other major currencies.
The yen was one of many currencies that fell on the day, reaching its lowest level against the dollar since 1998. This happened because the difference between Japanese and U.S. benchmark yields grew after Friday’s hot data on U.S. inflation.
European stocks fell for the fifth day in a row, and Bitcoin fell 9 percent to a low around $24,000 that hasn’t been seen in 18 months.
The dollar index, which compares the greenback to six other major currencies, rose as much as 0.5 percent on the day to 104.75, close to the 20-year high of 105.01 set in May.At the end of the day, it was up 0.2% at 104.63.
This week, the focus will stay on what the central banks are doing to stop inflation from getting out of hand.
At their meetings, the Federal Reserve and the Bank of England are likely to raise interest rates, and the Swiss National Bank could do the same.
So far, the Bank of Japan (BoJ) has resisted pressure to tighten policy, which would have made the yen weaker. Since early March, the difference in policies has caused the yen to lose more than 15% of its value against the dollar.
The yen dropped as much as 0.6% during the day, reaching a low of 135.22 yen per dollar, which hasn’t been seen since 1998. Then, it was about the same, at 134.37 yen per dollar.
On Monday, the top government spokesman said that Japan was ready to “respond appropriately” if needed.
“Overall, fundamental developments continue to favour further yen weakness in the near term,” currency analysts at MUFG wrote in a note. “However, market participants will be more wary of the risk of intervention and/or a hawkish shift in BOJ policy in the coming week.“
The pressure on the yen to go down could make people think that the yen could get as weak as it was during the Asian financial crisis in 1997, when it hit 140. According to the note, that was the last time Japan directly stepped in to support the currency.
The euro, the pound, and the Swiss franc all fell against the dollar to levels not seen in about four weeks.
The euro fell as much as 0.5 percent to $1.04560 before closing down 0.3 percent at $1.04775.
After data showed that Britain’s economy unexpectedly shrank in April, the pound fell by 0.8% to $1.22165.
At 0.99230 francs per dollar, the Swiss franc fell as much as 0.5%.