Following a fresh 20-year high of 110.680, the Dollar Index (DXY) traded at 110.450, climbing by 0.2%.
Additional positive US economic statistics, including an unanticipated acceleration of activity in the crucial services sector in the last month, which gave the Federal Reserve more room to raise interest rates significantly at their next meeting later in September, supported the dollar’s climb.
In an article with the Financial Times on September 6, the Richmond Fed Chair Thomas Barkin, stated that the Federal Reserve must raise interest rates to the point that slows economic activity and maintain them there once decision-makers are confident that inflation is declining.
The probability that the Federal Reserve will increase interest rates by 75 bps in the upcoming month is currently above 70%.
This strong move contrasts sharply with the Bank of Japan’s accommodating monetary policy approach, sending the USD/JPY rate surging to fresh 24-year highs, up 0.9% to 144.01. This is not far from the greatest point of the pair in 24 years, the 144.38 mark reached previously on September 7.
The yen has lost over 25% of its value compared to the dollar in 2022, making it likely that Japanese authorities will step in and prevent this from becoming their weakest year ever.
According to Hirokazu Matsuno, the Chief Cabinet Secretary, if unilateral and fast movements in currency markets persist, the administration would prefer to take the required action.
The EUR/USD exchange rate increased to 0.9911, close to the 20-year low reached on September 6, thanks to a better-than-expected 0.3% decline in German industrial output two months ago as the region’s biggest economy continues to face challenges with rising energy costs.
Provided that inflation in the Eurozone is drawing near double digits, the European Central Bank (ECB) is highly predicted to increase interest rates on September 8. In addition, European Union ministers are scheduled to convene on September 9 to debate the energy crisis, which is straining households and hitting the industry hard.
As the Bank of England (BoE) anticipated that the UK would face a protracted downturn at the end of 2022 as residents battle with an expenditure issue, the GBP/USD pair dropped to 1.1490.
Liz Truss, the newly elected prime minister of the United Kingdom, pledged a significant package of assistance as soon as this week to address skyrocketing energy prices. She may announce on September 8 that the government will allocate up to £200 billion, equivalent to $230 billion over the following year and a half.