Dollar sweeps to 20-year high, sterling on the ropes again By Reuters

By Rae Wee

SINGAPORE (Reuters) – Nervous financial markets propelled the safe-haven dollar to a fresh two-decade peak on Wednesday as rising global interest rates fed recession worries, while sterling languished near all-time lows on fears over Britain’s radical tax cut plans.

The against a basket of major currencies rose about 0.5% to hit a new high of 114.70 in Asia trade.

The relentless upward march of the dollar came as benchmark rose to 4% for the first time since 2010, topping at 4.004%. The two-year yields stood at 4.2891%. [US/]

“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.

“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.”

The Federal Reserve has led the global fight against surging inflation, turning even more aggressive recently by signalling further big rate increases on top of super-sized moves in the past few months.

That message was reinforced overnight by Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Minneapolis Federal Reserve Bank President Neel Kashkari, with Evans saying that the central bank will need to raise interest rates to a range between 4.50% and 4.75%.

The rising borrowing costs have intensified fears of a global recession, adding to the surge in bond yields worldwide.

Sterling was under fire again, slumping 0.95% to $1.06345, reversing a marginal 0.4% gain in the previous session. It is still nursing deep losses after collapsing to an all-time low of $1.0327 at the start of the week, having held near the $1.1300 level before last week’s UK budget.

Bank of England Chief Economist Huw Pill said overnight that the central bank is likely to deliver a “significant policy response” in response to finance minister Kwasi Kwarteng’s huge tax cut plans.

But he added that the central bank wants to wait until its next scheduled meeting in November before making its move, quashing market speculations of a potential inter-meeting interest rate hike.

“For the near-term I think sterling’s going to remain pretty weak from here,” said Carol Kong, senior associate for international economics and currency strategy at the Commonwealth Bank of Australia (OTC:).

“It’s basically a crisis of confidence. It’ll be up to the UK government to resolve this … rather than Bank of England.”

The stronger dollar pushed other currencies to multi-year lows on Wednesday, with the falling 0.8% to hit a trough at $0.6381, its lowest since May 2020. The lost about 1% to $0.55645, similarly its lowest since March 2020.

The Chinese fell as far as 7.2350 per dollar, the lowest level since…