Singapore—On Wednesday, jittery financial markets pushed the safe-haven dollar to a new 20-year high, as rising global interest rates added to fears of a recession. Meanwhile, the value of the pound stayed close to an all-time low, as people worried about Britain’s radical plans to cut taxes.
In Asia trade, the U.S. dollar index against a group of major currencies went up by about 0.5% to a new high of 114.70.
The dollar kept going up even as the benchmark 10-year U.S. Treasury yield went over 4% for the first time since 2010. It reached a high of 4.004%. The yields on two-year bonds were at 4.2891%. [US/]
“It’s a combination of factors, such as the effects of the UK, where gilt yields have skyrocketed.” “It’s a combination of factors, such as the effects of the UK, where gilt yields have skyrocketed. And this has spread to other bond markets in the DM, so there is a bit of a ricochet effect.” A currency strategist at the Bank of Singapore, Moh Siong Sim, said this.
Related: rupee goes up sharply against the dollar.
“Of course, all of this is happening against the Fed’s clear message that it will do whatever it takes to bring inflation down.”
The Federal Reserve has led the fight against rising inflation around the world. It has recently become even more aggressive by signalling more big rate hikes on top of the huge moves it has already made in the past few months.
Overnight, Chicago Fed President Charles Evans, St. Louis Fed President James Bullard, and Minneapolis Federal Reserve Bank President Neel Kashkari all echoed this message. Evans said that the central bank will need to raise interest rates to a range of 4.50% to 4.75%.
Fears of a global recession have grown because borrowing costs are going up. This has made bond yields go up all over the world.
Sterling was under attack again, and it fell 0.95 percent to $1.06345. This erased a small 0.4% gain from the previous session. It is still down a lot after falling to an all-time low of $1.0327 at the beginning of the week. Before the UK budget last week, it was around $1.1300.
Overnight, Bank of England Chief Economist Huw Pill said that the central bank is likely to come up with a “significant policy response” to Finance Minister Kwasi Kwarteng’s plans to cut taxes by a lot.
But he added that the central bank wants to wait until its next meeting in November to make a move. This put an end to market rumours that there might be an interest rate hike between meetings.
Carol Kong, senior associate for international economics and currency strategy at the Commonwealth Bank of Australia, said, “I think sterling will stay pretty weak for the near future” (OTC:CMWAY).
“It comes down to a lack of trust. It won’t be up to the Bank of England to figure this out. instead, it will be up to the UK government.”
On Wednesday, the stronger dollar drove other currencies to multi-year lows. For example, the Aussie fell 0.8% to hit a low of $0.6381, which was the lowest it had been since May 2020. The Kiwi fell by about 1% to $0.55645, which is the same as March 2020, when it was at its lowest.
The Chinese offshore yuan fell as low as 7.2350 dollars per yuan, which is the lowest level since records began in 2011.
A source told Reuters late on Tuesday that Chinese monetary authorities are asking local banks to bring back a tool for fixing the yuan that they stopped using two years ago. They want to steer and protect the currency, which is getting weaker quickly.
The euro fell 0.45% to $0.9550, which is not too far from its recent 20-year low of $0.9528. The latest flare-up in the gas crisis in the euro zone has made the single currency’s future look even worse.
Related: As the Dollar rally pauses, Chinese Yuan falls and Asia FX suffers losses
On Tuesday, Europe was looking into what Germany, Denmark, and Sweden said were attacks that caused two Russian gas pipelines to leak a lot of gas into the Baltic Sea. The two pipelines were at the centre of an energy standoff.
In other places, the yen was worth 144.69 dollars as of last week. This is still close to its lowest level in years, even though Japan stepped in last week to help the weak currency.
“What would really change the value of the yen is if the BOJ gave up or changed their yield curve control policy,” said Pablo Calderini, chief investment officer at hedge fund Graham Capital.
“As long as the difference in interest rates stays at 4%, it will be hard for the yen to get much stronger.”
