The dollar rose to a two-decade high as Putin shook the FX market ahead of the Fed

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  • The dollar index is at its highest level in two decades
  • The euro fell to its lowest level in two decades
  • Putin announces partial mobilization of troops for Ukraine
  • Markets Gauge Fed Tightness at Powell’s Briefing

LONDON/NEW YORK (Reuters) – The dollar surged on Wednesday to a new two-decade high before another rate hike expected from the Federal Reserve, as investors fled for safety after Russian President Vladimir Putin’s decision to mobilize. More troops for the conflict in Ukraine.

Putin on Wednesday called up 300,000 reservists to fight in Ukraine and said Moscow would respond with the force of its huge arsenal if the West pursued what he called its “nuclear blackmail” over the conflict there. Read more

The news pushed the dollar index, which measures the value of the US currency against six major currencies, to 110.87 <=USD>its strongest level since 2002.

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The dollar index is up nearly 16% this year and is heading for its biggest annual increase since 1981. It was last traded at 110.71, up about 0.5% on the day.

“Most of the dollar’s ​​moves today are related to Putin,” said Stephen Englander, head of global G10 FX research and North American macro strategy at Standard Chartered in New York.

“When I look at my table, the five worst performing currencies are the Swedish crown, the Polish zloty, the Czech koruna, the Hungarian forint and the euro. This is of even greater concern to Putin due to hints that Russia might escalate the conflict in Ukraine and on what limits it places on the weapons they use.”

The dollar index is at a two-decade high, ahead of the Federal Reserve

European currencies took the brunt of the sell-off in foreign exchange markets as Putin’s comments exacerbated concern about the economic outlook for a region already hard hit by Russia’s pressure on gas supplies to Europe.

The euro fell to a two-week low of $0.9885, within sight of the two-decade lows it touched earlier this month. The last drop was 0.7% at $0.9901.

The British pound fell to a 37-year low of $1.1304, and was last down 0.5% at $1.1335.

Later on Wednesday, the Federal Reserve is expected to raise interest rates by three-quarters of a percentage point for the third time in a row and signal how much and how quickly borrowing costs may need to tame inflation. Read more

The policy decision, scheduled for 1800 GMT, will mark the latest step in a synchronized shift in policy by global central banks that are testing the resilience of the global economy and countries’ ability to manage exchange rate shocks as the dollar appreciates.

“What the market is looking for is whether (Fed Chairman Jerome) Powell says the Fed doesn’t know how far they should go and they will go as far as they need to,” Standard Chartered’s Englander said.

“If someone asked him if he saw rates going to 5%, and he said he didn’t, but he wouldn’t rule out whether that was necessary to bring down inflation, that would be really hawkish and would mean that it would open up raising rates to a higher range than the market expects.”

Meanwhile, the Australian and New Zealand dollars fell to multi-year lows. The Australian dollar reached its lowest level at $0.6655, the lowest since June 2020, while the New Zealand currency fell to $0.5873, the lowest since April 2020.

Against the troubled yen, the dollar rose 0.2% to 143.97, halting its highest in 24 years.

“It was interesting to me that the dollar/yen fell on the announcement news, likely signaling the return of the safe-haven yen credentials that had been absent for most of the year,” said Colin Asher, chief economist at Mizuho Corporation. Bank.

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Currency quote at 10:42 am (1442 GMT)

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(Reporting by Dara Ranasinghe in London and Gertrude Chavez-Dreyfus in New York; Additional reporting by Lucy Raitano. Editing by Edwina Gibbs, Catherine Evans and Mark Heinrich

Our Standards: Thomson Reuters Trust Principles.

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