TOKYO The US dollar hit a fresh five-week high against major peers on Monday after more Federal Reserve officials flagged the likelihood of continued monetary tightening ahead of the central bank's key Jackson Hole symposium this week.
After Russia announced a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of the month, the euro fell to a new five-week trough, which added to the region's energy crisis.
China's yuan dropped to its lowest level in nearly two years after the central bank cut key lending rates, adding to a string of monetary easing measures aimed at shoring up an economy reeling from COVID 19 clampdowns and a property crisis.
The Australian and New Zealand dollar rebounded strongly from near five week lows, helped by firmer commodity prices.
The U.S. dollar index, which measures the currency against six rivals including the euro, was up to 108.26 for the first time since July 15 at the Asian session before trading flat at 108.12.
It gained 2.33 per cent last week, its best weekly rally since April 2020 - amid a chorus of Fed policymakers stressing that more needs to be done to rein in decades-high inflation.
The Fed President Thomas Barkin said on Friday that the urge among central bankers was towards faster, front-loaded rate increases.
Rodrigo Catril, senior FX strategist at National Australia Bank, said that the Fed speakers have been stressing that more rate hikes are coming as the fight against inflation has not yet been won, which has rattled markets ahead of Jackson Hole on August 25 - 27, amid growing expectations for Fed Chair Jerome Powell to stress that tightening is still a long way from the end.
Money markets indicate 46.5 per cent odds of a 75 basis point rate hike on Sept. 21, with a 53.5 per cent chance of a half-point rise.
Economists in the Reuters poll lean toward a 50 basis-point increase with recession risks on the rise.
The US Treasury yield went above 3 per cent on Monday for the first time since July 21.
The dollar climbed as high as 137.44 yen against Japan's currency, which is extremely sensitive to U.S. yields, the strongest since July 27.
The dollar went up as high as 6.8308 yuan in onshore trading for the first time since September 2020 after the People's Bank of China cut the one and five-year loan prime rates, as widely expected. That came after it eased other key borrowing benchmarks in a surprise move last week.
The dollar hit 6.8520 against the offshore currency, the strongest since September 2020.
The commodity-linked Aussie gained 0.39 per cent to $0.6902 after a slide to $0.68595 on Friday for the first time since July 19 - as the Dalian iron ore rallied more than 2 per cent and copper also increased.
The kiwi gained 0.4 per cent, to $0.61995 after declining to $0.61675 at the end of last week, a first since July 19.
The euro fell as low as $1.0026 for the first time since July 15 before trading flat at $1.0040.
The pound was not far from Friday's five-week low of $1.17925, as it was little changed at $1.18325.
Bundesbank President Joachim Nagel told German newspaper Rheinischen Post that the German economy, which is most exposed to disruptions in Russian gas supply, is likely to suffer a recession over the winter if the energy crisis continues to deepen.
He added that even if a German recession is imminent, the European Central Bank must raise rates to tame inflation.
Westpac strategists wrote in a research note that time back below parity looks inevitable for the euro, although it can bounce around either side of that mark in the short term rather than fall strongly through it.