Risk aversion drives up the dollar while the euro revisits parity.


Reuters, NEW YORK, August 22 – On Monday, the U.S. dollar increased globally, pushing the euro back below parity as investors stayed away from riskier investments due to rising concerns that interest rate increases in the US and Europe intended to fight inflation would hurt the global economy.

The dollar increased 0.8% to a more than five-week high of 109.02 as measured against a basket of currencies, not far from the two-decade top of 109.29 reached in mid-July.

Prior to the Federal Reserve’s Jackson Hole, Wyoming, symposium this week, several Federal Reserve officials maintained their aggressive monetary tightening stance, giving the dollar support in recent sessions.


The most recent of these individuals, Thomas Barkin, president of the Richmond Fed, stated on Friday that there was a “urge” among central bankers for more rapid, front-loaded rate increases. View More

According to Michael Brown, head of market intelligence at Caxton in London, “it’s risk being taken off the table after the market got a reality check from last week’s Fed speakers that an impending dovish pivot is off the cards.”

“Given that investors now clearly expect Fed Chair (Jerome) Powell to deliver a relatively hawkish message at Jackson Hole on Friday, it’s a perfect cocktail of risk aversion and a hawkish Fed for the greenback to bound higher,” Brown said. “Especially when growth worries, especially in Europe, continue to mount.”

Following Russia’s late-Friday announcement of a three-day suspension of European gas imports through the Nord Stream 1 pipeline at the end of this month, the euro dropped. Investors are concerned that the suspension may worsen the oil situation, which has already put pressure on the dollar. View More

According to Bundesbank President Joachim Nagel, rates at the European Central Bank must continue to rise even though a recession in Germany is becoming more probable because inflation will continue to be uncomfortably high through 2023.

The euro temporarily fell below $1 for the first time since July 14 as a result of the weakness. The euro last traded at $0.99345 while losing 1.1%.

Brown stated: “Given that it was the previous low, 0.9950 appears to be the crucial level. The ECB’s window to tighten policy is quickly closing, so if that gives way, we could see sizable additional losses.”

In addition to last week’s easing measures, China’s central bank cut its benchmark lending rate and mortgage reference rate on Monday, sending the yuan to its lowest level in nearly two years. Beijing is stepping up efforts to revive an economy that has been hampered by a property crisis and a rise in COVID-19 cases. View More

The dollar was 0.54 percent stronger at 6.869 against the offshore yuan.

On Monday, the pound dropped to its lowest level versus the dollar since mid-July as rising energy prices and a summer of strikes brought attention to the UK’s cost of living crisis and heightened concerns of a further slowdown in the economy. View More

The pound was recently trading at $1.17565, down 0.64%, almost missing the mid-July low of 1.17435 (close to a 2-1/2-year low).
Due to widespread risk aversion in the markets, bitcoin was down roughly 2.52% at $20,972 in the cryptocurrency world.
Saqib Iqbal Ahmed contributed to the report, while Jonathan Oatis and Cynthia Osterman edited it.
The Thomson Reuters Trust Principles serve as our benchmarks.


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