The dollar hit its highest level in 20 years, following the strict statements Federal Reserve Chairman Jerome PowellBy continuing to raise interest rates to reach the inflation target of 2%.
For his part, IG financial analyst Montaser Safi El-Din said that Jerome Powell’s words were short and clear that there will be a rise in the interest rate, but it will stop for a longer period, against market expectations of a rate cut at the beginning of next year.
Safi Al-Din added, in an interview with Al-Arabiya, today, Monday, that Jerome Powell mentioned the word inflation 50 times, while he mentioned jobs and the economy below 10 times, and therefore there will be a sacrifice of jobs and the economy at the expense of inflation, pointing to the increasing expectations of the Federal Reserve increasing the interest rate by 75 basis points in September.
The dollar consolidated its gains as a safe haven after warnings by Powell that addressing inflation would be painful for US households and companies.
The two-year US Treasury yield rose in the wake of Jerome Powell’s recent comments, reaching 3.49%, the highest level since late 2007, while the 10-year yield was stable at 3.12%, deepening the yield curve inversion.
The dollar index, which measures the value of the US currency against a basket of other currencies, rose to a new high it had not reached two decades ago at 109.48.
This left European currencies in the doldrums even though the hawkish European Central Bank’s hawkish comments boosted expectations of a rate hike in September.
The euro fell 0.25% in early European trade to $0.99415, close to its lowest level in 20 years, while the pound fell to its lowest level in two and a half years.
Speaking at a central bank symposium in Jackson Hole, Wyoming, on Friday, Powell said that the Federal Reserve will raise interest rates to the highest level necessary to restrain growth, and will keep them at that level “for some time” to reduce inflation, which has reached more than three times the Fed’s target rate of 2%.
And US Treasury yields rose, as the two-year bond yields reached their highest level in 15 years at about 3.49%, which contributed to strengthening the dollar index.
The dollar rose 0.8 percent to 138.81 yen after hitting its highest level since July 21, while the yuan fell to a two-year low of 6.9321 per dollar.
The British pound fell to its lowest level in two and a half years at $1.1649, before finally falling 0.5% to $1.1676.
With risk aversion dominating global markets, the Australian and New Zealand dollars were negatively affected by selling pressure.
The Australian dollar fell to $0.6838, its lowest level since July 19, while the New Zealand dollar fell to its lowest level since mid-July at $0.61.
As for cryptocurrencies, Bitcoin recovered some of its value but remained below the $20,000 level.