21 Sep 2022
The U.S. Dollar rose to a fresh 20-year high on Wednesday, as markets were rattled by Russia’s President Putin before another potentially aggressive rate hike by the Federal Reserve.
Putin ordered Russia's first mobilisation since World War Two, Reuters reports, warning the West: "If the territorial integrity of our country is threatened, we will use all available means to protect our people - this is not a bluff.”
The news led the Dollar index – measuring the currency against other key rivals – to edge over 0.5% higher to 110.87, the highest since 2002.
European currencies took a major hit from selling in foreign exchange markets as the comments from Putin fuelled fears over the economic outlook.
The Euro declined to a fortnight-low of $0.9885, not far from 20-year lows reached earlier in September, and at the time of writing was down 0.6% at $0.9912.
The Pound, down 0.4%, plummeted to a new 37-year low of $1.1304, before Putin’s comments.
"The Russia headlines are stealing the thunder from the Fed at least for now," stated Societe Generale currency strategist, Kenneth Broux.
"A concern about an escalation in the conflict is hurting European currencies. And if the Fed is also hawkish tonight then you could see the losses snowball,” he added.
The Fed is predicted to hike interest rates by 75 basis points on Wednesday for the third consecutive time. It will also offer an indication of how much further and at what pace borrowing costs may have to increase to curb inflation, the Reuters report adds.
The Dollar index has risen almost 16% in 2022 and is set for its largest yearly increase since 1981. According to analysts, the intensified geopolitical uncertainty has boosted the Dollar’s strength.
"Obviously we have a situation where investors flock to safe havens, and we've also got the anticipation that we are going to see another rate hike from the Federal Reserve today," said financial analyst at AJ Bell in London, Danni Hewson,
"So the Dollar was already looking quite punchy and clearly just the proximity to Ukraine of countries in Europe does make people consider what the situation might look like if the war in Ukraine becomes something bigger."