NEW YORK, Aug 29, Reuters -- The dollar touched a fresh 20 year high on Monday, lifted by hawkish comments by Federal Reserve Chair Jerome Powell, but was kept in check as the euro was boosted by growing expectations for European Central Bank ECB rate hikes.
The dollar index, which measures the currency's value against a basket of peers, hit 109.48 early in the session, a level not seen since September 2002.
The dollar gained from Friday when Powell told the Jackson Hole central banking conference in Wyoming that the Fed would raise rates as high as needed to restrict growth and keep them there for some time to lower inflation, running at more than three times the Fed's 2% goal.
Joe Manimbo, senior market analyst at Convera said that the Fed chairman last week sounded really hawkish, and that pretty much torpedoed the idea of a policy pivot early next year.
Money markets bets for a more aggressive Fed rate hike in September have gone up with the chance of a 75 basis point hike in September, with the chance of a 75 basis point hike now seen around 70%. Two-year bond yields hit a 15 year high of around 3.49%, with the U.S. Treasury yields soared.
The August U.S. employment report will be released on September 2, and traders are looking forward to September 2, as they look at the economy's health in the face of rising rates and stubborn inflation before the Fed's next policy meeting.
A European official pointed out that there was a possible 75 basis-point hike at the Sept. 8 ECB meeting that helped push the euro higher.
Isabel Schnabel, a board member of the European Central Bank, warned on Saturday that central banks risk losing public trust and must act forcefully to curb inflation, even if that drags their economies into a recession.
According to Manimbo, the euro is stealing some of the dollar's thunder and that's on the view that the ECB could match the Fed's gigantic rate hike with one of its own next month.
The euro was up 0.29% last year, but still fell below parity with the dollar at $0.9993.
Central banks aren't interested in being hawkish right now, given inflation, so they will hike rates aggressively, said Jan von Gerich, Nordea chief analyst.
A comment by German Economy Minister Robert Habeck said that Germany is making progress on its storage targets and that he expects gas prices to fall soon.
The dollar index was down 0.348% at $108.8 at 3: 20 p.m. Eastern Time 1920 GMT The dollar was up 0.78% against Japan's yen, at 138.76 yen.
The pound fell to a 2 -- 1 2 year low of $1.1649 in thin trading on a UK public holiday, versus the dollar, and was last down 0.23% at $1.1703.
It was higher in cryptocurrencies to trade above the $20,000 level.