The dollar rose and the euro held above a twenty-year low on Thursday after the European Central Bank raised interest rates by a record 75 basis points, taking the deposit rate above 0% for the first time since 2012, in an attempt to tame surging inflation.
The central bank said it expected to continue raising rates to dampen demand, prioritizing the fight against inflation even as the euro zone heads towards a likely winter recession.
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"For the euro, the confirmation of a 75bps hike provided the impetus for a brief rally," said Simon Harvey, head of FX analysis at Monex Europe in London, noting the single currency failed to hold higher as focus turned to ECB President Christine Lagarde's press conference and the deteriorating economic backdrop.
The euro was last trading 0.55% lower at $0.994, holding above its lowest level since late 2002 of $0.9864, as Europe's energy crisis keeps the single currency under pressure and the dollar reigns, with the Federal Reserve reiterating its commitment to bring inflation down to target.
Fed Chair Jerome Powell is scheduled to participate in a discussion overlapping with Lagarde's post-decision press conference - with Fed officials soon due to enter a blackout period prior to the central bank's Sept. 20-21 meeting.
Recent Fed rhetoric has been hawkish overall.
Boston Fed President Susan Collins said on Wednesday that bringing inflation back down to 2% was the Fed's "Job One," while Vice Chair Lael Brainard said tight monetary policy would continue "for as long as it takes to get inflation down."
Money markets lay 79% odds the Fed will hike by another 75 basis points at this month's meeting, which would increase the fed funds rate to 3.0% to 3.25%.
The U.S. dollar index, which measures the currency against six major counterparts, edged 0.29% higher to 110.16, after hitting a peak at 110.79 on Wednesday, a level not seen since June 2002.
Sterling was down 0.49% at $1.1469, above the previous day's 37-year low of $1.1407, as new British Prime Minister Liz Truss set out the government's plans to tackle soaring energy bills.
Japan's yen traded 0.42% lower at 144.31 per dollar, having reached a 24-year low of 144.99 in the previous session.
The yen has been a particular victim of recent dollar strength, partly due to its sensitivity to rising long-term U.S. yields as hawkish Fed bets ramped up and the Bank of Japan remains the holdout dovish central bank.
Japan is ready to take action in the currency market and won't rule out any options to address "clearly excessive volatility" seen in recent yen moves, the country's top currency diplomat said after a meeting between the Bank of Japan, Ministry of Finance and Financial Services Agency.
"Ongoing depreciation pressure on the yen has raised the probability of a change in policy (from the Bank of Japan) later this year," Goldman Sachs analysts said in a research note.
"If the BoJ drops YCC (yield curve control), rate differentials vs the U.S. should stop widening, and the rise in USD/JPY should pause or reverse."
Meanwhile, the Aussie fell 0.5% to $0.67325, earlier tumbling as low as $0.6713, after central bank governor Lowe said in a speech "the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises."
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September 08, 2022 at 10:36AM
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Dollar rises, euro holds above two-decade low after record ECB rate hike - CNBC
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