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Dollar higher on risk aversion; euro revisits parity
Global Banking & Finance Review®
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By Saqib Iqbal Ahmed
NEW YORK (Reuters) -The U.S. dollar rose across the board on Monday, briefly driving the euro back below parity, as investors shied away from riskier assets amid growing fears that interest-rate hikes in the United States and Europe, aimed at curbing inflation, would weaken the global economy.
Against a basket of currencies, the dollar was 0.5% higher at 108.71, not far from the two-decade high of 109.29 touched in mid-July.
The greenback has found support in recent sessions as several Federal Reserve officials reiterated an aggressive monetary tightening stance ahead of the Fed’s Jackson Hole, Wyoming, symposium this week.
The latest of these officials, Richmond Fed President Thomas Barkin, on Friday said the “urge” among central bankers was toward faster, front-loaded rate increases.
“It’s risk being taken off the table after the market got a reality check from last week’s Fed speakers that an imminent dovish pivot is off the cards,” said Michael Brown, head of market intelligence at Caxton in London.
“With investors now clearly expecting a relatively hawkish message from Fed Chair (Jerome) Powell at Jackson Hole on Friday, it’s a perfect cocktail of risk-aversion and a hawkish Fed for the greenback to bound higher, especially when growth worries, especially in Europe, continue to mount,” Brown said.
The euro fell following Russia’s announcement late on Friday of a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of this month. Investors worry that the halt could exacerbate an energy crisis that has weighed on the common currency in recent months.
The European Central Bank must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023, Bundesbank President Joachim Nagel told a German newspaper.
The weakness briefly drove the euro below $1 for the first time since July 14. The euro was last down 0.7% at $0.99715.
“0.9950 seems to be the pivotal level, as that’s the prior low, if that gives way then we could see significant further losses, especially with the ECB’s window to tighten policy rapidly slamming shut,” Brown said.
China’s yuan dropped to its lowest in nearly two years after the country’s central bank cut its benchmark lending rate and lowered the mortgage reference by a bigger margin on Monday, adding to last week’s easing measures, as Beijing boosts efforts to revive an economy hobbled by a property crisis and a resurgence of COVID-19 cases.
Against the offshore yuan, the dollar was 0.55% higher at 6.8621.
Sterling fell to its lowest since mid-July against the dollar on Monday as surging energy costs and a summer of strikes highlighted the UK cost of living crisis and intensified fears for further economic slowdown.
The pound was last down 0.43% at $1.1781, within a whisker of taking out the near 2-1/2 year low of 1.1761 touched in mid-July.
In cryptocurrencies, bitcoin was about 0.92% lower at $21,316, weighed down by broad risk aversion in markets.
(Reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis)
The U.S. dollar is the official currency of the United States and is widely used as a global reserve currency. It is represented by the symbol '$' and is known for its stability.
Foreign exchange, or forex, refers to the global marketplace for trading national currencies against one another. It is essential for international trade and investment.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are influenced by central bank policies and economic conditions.
The euro is the official currency of the Eurozone, used by 19 of the 27 European Union countries. It is represented by the symbol '€' and is the second most traded currency in the world.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI).
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