SINGAPORE- The dollar hit a 20-year high against a basket of peers on Monday, with sterling and the euro the biggest losers as Russia’s halt on gas supply down its main pipeline to Europe has sparked concerns over energy prices and growth.
The euro touched $0.9901 in early Asia trade, just above last month’s trough of $0.99005. Sterling hit a 2-1/2-year low at $1.1458, and remained close to its pandemic nadir.
Russia scrapped a Saturday deadline for flows down the Nord Stream pipeline to resume, citing an oil leak in a turbine. It coincided with the Group of Seven finance ministers announcing a price cap on Russian oil.
Similarly, the pound has also been weighed down by concerns over rising energy costs. British foreign minister Liz Truss said over the weekend she would set out immediate action to tackle rising energy bills and increase energy supplies if she is, as expected, to become Britain’s next prime minister.
The yen, at 140.32 per dollar, was under pressure near a 24-year low. The risk-sensitive Australian dollar slid 0.4 percent and was near a seven-week low at $0.6782.
The US dollar index hit a new two-decade high, surging to a top of 110.08.
“The first order effect seems to be that the heightened geopolitical risk and consequent adverse global demand shocks will probably be the effects dominating,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore.
“The adverse demand shocks in a very unsavory geopolitical environment is probably going to trigger, and reflect, safe demand for the US dollar … the European currencies are perhaps going to be the worst hit and on the back foot.”
Outsized rate hikes are on the cards this week. Markets have priced about a 75 percent chance of a 75 basis point (bp) hike in Europe and an almost 70 percent chance of a 50 bp hike in Australia.
