While the dollar is at a 20-year high, exchange rates are in check with the euro

U.S. dollar bills are seen in this image taken on July 17, 2022. REUTERS/Dado Ruvic/Illustration

NEW YORK, Aug 29 (Reuters) – The dollar hit a 20-year high on Monday on dovish comments from Federal Reserve Chairman Jerome Powell, but was held in check by the euro, supported by rising expectations for Central Europeans. The Bank (ECB) increased the discount rate.

The dollar index, which measures the currency’s value against a basket of peers, rose to 109.48 before retreating.

The U.S. dollar rose 0.73% against the Japanese yen, while the British pound hit a 2-1/2-year low in trade on a UK public holiday.

At the Jackson Hole central bank conference in Wyoming on Friday, Powell said the Fed would raise interest rates as necessary to limit growth and keep them there “for a while” to bring down inflation, which has more than tripled. 2% target. read more

“Powell’s comments confirm a longer-term Fed rate hike,” said Kenneth Broux, currency strategist at Societe Generale. “It is premature to assume that the Fed will start cutting interest rates in mid-2023.”

Money markets have increased bets for a more aggressive Fed rate hike in September, with the odds of a 75 basis point hike now seen at around 70%. US Treasury yields rose, with two-year bond yields hitting a 15-year high of around 3.49%.

The euro edged higher, helped by “ECB comments and rumours, including mulling a 75bps hike at the September 8 ECB meeting,” said Derek Holt, head of capital markets economics at Scotiabank.

Although the euro last rose by 0.34% against the dollar, it remained below parity at $0.99985.

Governing Council member Isabelle Schnabel warned on Saturday that central banks risk losing public confidence and need to act hard to curb inflation if that pushes their economies into recession. read more

“Central banks are not interested in anything other than being hawkish now, given inflation, so they will raise rates aggressively,” said Jan von Gerich, senior analyst at Nordea.

German Economy Minister Robert Habek’s comment that he expects gas prices to drop soon and Germany to make progress in its storage targets may have supported the euro. read more

The dollar index retreated after hitting a 20-year high, mainly on the strength of the euro, and was down 0.403% at $108.74 by 10:40 a.m. (1440 GMT).

Sterling hit a 2-1/2-year low of $1.1649 and was last down 0.14% at $1.1713. read more

In cryptocurrencies, bitcoin has regained some ground to trade above the $20,000 level. read more

Reporting by John McCrank in New York and Dhara Ranasinghe in London; Edited by Christina Fincher, Jan Harvey and Nick Macfie

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