Dollar at two-decade high as risky assets sell off; the yen regains ground

  • Dollar index up 0.6%; all eyes on Wednesday’s Fed decision
  • Cryptocurrencies Plunge; Bitcoin down 20%

NEW YORK, June 13 (Reuters) – The safe-haven U.S. dollar hit a new two-decade high against a basket of currencies on Monday, buoyed by fears of a global economic slowdown and bets on strong interest rate hikes by the US federal government. Reserve.

Global financial markets continued to benefit from warmer-than-expected US inflation data on Friday, which led to a broad-based increase in risk aversion and fueled bets on even more aggressive policy tightening. Read more

On Monday, government bonds sold off and stock markets around the world were hit hard. Read more

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“The USD extended its gains from Friday as risk continues to dissipate across the board,” Brad Bechtel, global head of FX at Jefferies, said in a note.

The U.S. dollar currency index, which tracks its performance against six other major currencies, rose 0.6% to 105.04, after hitting its highest level since December 2002.

Traders have a lot to do this week, including policy meetings from the Fed, Bank of England and Swiss National Bank.

The US Federal Reserve is expected to raise its benchmark rate by 50 basis points on Wednesday, with some, including Barclays and Jefferies, expecting the Fed to opt for a 75 basis point move.

“A 75 basis point (bps) move is definitely going to come as a surprise to some who are holding a hard line on 50 basis points,” Bechtel said, adding that he expects the index to dollar rises on such a move.

The battered Japanese yen, floundering near lows against the dollar not seen since 1998, was one of the major currencies rising against it on Monday.

The yen found some support in comments from Japan’s top government spokesman that Tokyo is concerned about its steep fall and stands ready to “respond appropriately” if necessary. Read more

“The increasingly strident tone from policymakers suggests they may soon swing from one verbal intervention to another,” said Tom Learmouth, Japan economist at Capital Economics, in a note.

“We don’t believe an FX intervention would provide anything other than fleeting respite at potentially high cost,” Learmouth added.

On Monday, the dollar was down 0.1% at 134.25 yen.

The Australian dollar, considered a liquid indicator of risk appetite, fell 1.7%.

The pound fell to a one-month low against the dollar, coming under selling pressure after data showed the UK economy unexpectedly contracted in April. Tensions with the European Union over post-Brexit trade with Northern Ireland also weighed on the pound, which fell 1.4% to $1.2146.

Bitcoin fell 20.0% to $23,350.5, marking its worst day in more than two years, after major US cryptocurrency lending company Celsius Network froze withdrawals and transfers citing “extreme” conditions, in the latest sign of how financial market turbulence is causing distress in the cryptosphere. Read more

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Reporting by Saqib Iqbal Ahmed; Editing by William Maclean

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