The US dollar reached a new two-decade high Wednesday against a basket of currencies on rising Treasury yields, while sterling remained near a record low on fears over Britain’s drastic tax cuts to stimulate growth.
The dollar index hit a new high of 114.68 in Asia trade and was last up 0.42% at 114.62.
“It’s a combination of the spillover from the UK… where the gilt yields have gone ballistic. And that has spilled over into other DM bond markets, so there’s a bit of a ricochet effect,” said Moh Siong Sim, a currency strategist at Bank of Singapore, according to Reuters on Wednesday.
“And of course … this is against the backdrop of a very determined message by the Fed to do whatever it takes to bring inflation down.”
Overnight, Chicago Federal Reserve President Charles Evans, St. Louis Federal Reserve President James Bullard, and Minneapolis Federal Reserve Bank President Neel Kashkari all reaffirmed the Fed’s hawkish stance, with Evans stating that a rate hike to 4.50% to 4.75% is necessary.
The pound fell by nearly 1% to US$1.0634, reversing the session before’s modest gain of 0.4% and continuing to suffer heavy losses after hitting a new low of US$1.0327 earlier in the week.