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Aug 23 (Reuters) – The dollar index fell on Tuesday, tumbling from the brink of July’s 20-year peak of 109.29 after data showed US services PMI slid further into contraction and new home sales plunged, raising questions about the future of aggressive Fed tightening.

Caution ahead of the Fed Chair Jerome Powell’s Jackson Hole speech and PCE data limited the dollar’s descent, but the damage was done.

The dollar retreat was a reprieve for EUR/USD, which had earlier struck a 20-year low at 0.99005 on EBS following recessionary euro zone PMI data.

Shorts covered after EUR/USD held above the 0.9900 level, but its rebound ran out of steam at 1.0018.

ECB board member Fabio Panetta said the ECB must be prudent with rate hikes as recession risk is rising nF9N2Z000P.

Treasury yields and the dollar rebounded in late trading with the market unwilling to bet against the Fed raising rates by about 125bp by year-end, as a September hike of 50bp or 75bp remains a toss-up.

In addition to this week’s events, August non-farm payrolls, CPI, and retail sales reports will add to the data set before the Sept. 21 Fed meeting. Fed speakers have gone out of their way since the last meeting to emphasize their focus on taming inflation.

GBP/USD gained 0.46%, reversing most of its early losses down to 1.1718, its lowest low since March 2020’s pandemic plunge. UK data were also dreary, but markets see the BoE potentially overtaking the Fed in the rate-hike race.

USD/JPY was down 0.48%, after a fall from early 137.705 EBS session highs to post-US data miss 135.82 lows that drew in dip buying ahead of Friday’s lows and key converged 30- and 50-day moving averages. Its outlook hangs in the balance ahead of Jackson Hole.

The Canadian and Australian dollars gained about 0.75 and 0.6%%, largely on the US data misses, giving back only a modest portion of their gains.

AUD/USD found support for a third consecutive session by the 61.8% Fibo of the July-August rise at 0.6856.

Bitcoin was little changed after last week’s beating.

Wednesday features US durable goods orders and pending homes sales. There will also be some attention on Ukraine’s Independence Day, which some worry could trigger a Russian military response.

Oil prices surged on OPEC+ perhaps looking to cut production, while natural gas prices fell back from Monday’s extreme highs.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

NEW YORK, Aug 22 (Reuters) – The US dollar rose across the board on Monday, driving the euro back below parity, as investors shied away from riskier assets amid growing fears that interest-rate hikes in the United States and Europe, aimed at curbing inflation, would weaken the global economy.

Against a basket of currencies, the dollar rose 0.8% to a more than five-week high of 109.02, not far from the two-decade peak of 109.29 touched in mid-July.

The greenback has found support in recent sessions as several Federal Reserve officials reiterated an aggressive monetary tightening stance ahead of the Fed’s Jackson Hole, Wyoming, symposium this week.

The latest of these officials, Richmond Fed President Thomas Barkin, on Friday said the “urge” among central bankers was toward faster, front-loaded rate increases.

“It’s risk being taken off the table after the market got a reality check from last week’s Fed speakers that an imminent dovish pivot is off the cards,” said Michael Brown, head of market intelligence at Caxton in London.

“With investors now clearly expecting a relatively hawkish message from Fed Chair (Jerome) Powell at Jackson Hole on Friday, it’s a perfect cocktail of risk-aversion and a hawkish Fed for the greenback to bound higher, especially when growth worries, especially in Europe, continue to mount,” Brown said.

The euro fell following Russia’s announcement late on Friday of a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of this month. Investors worry that the halt could exacerbate an energy crisis that has weighed on the common currency in recent months.

The European Central Bank must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023, Bundesbank President Joachim Nagel told a German newspaper.

The weakness briefly drove the euro below USD 1 for the first time since July 14. The euro was last down 1.1% at USD 0.99345.

Brown said, “0.9950 seems to be the pivotal level, as that’s the prior low. If that gives way, then we could see significant further losses, especially with the ECB’s window to tighten policy rapidly slamming shut.”

China’s yuan dropped to its lowest in nearly two years after the country’s central bank cut its benchmark lending rate and lowered the mortgage reference by a bigger margin on Monday, adding to last week’s easing measures, as Beijing boosts efforts to revive an economy hobbled by a property crisis and a resurgence of COVID-19 cases.

Against the offshore yuan, the dollar was 0.54% higher at 6.869.

Sterling fell to its lowest since mid-July against the dollar on Monday as surging energy costs and a summer of strikes highlighted the UK cost of living crisis and intensified fears of further economic slowdown.

The pound was last down 0.64% at USD 1.17565, within a whisker of taking out the near 2-1/2-year low of 1.17435 touched in mid-July.

In cryptocurrencies, bitcoin was about 2.52% lower at USD 20,972, weighed down by broad risk aversion in markets.

(Reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis and Cynthia Osterman)

 

Aug 22 (Reuters) – The dollar rallied on Monday as China’s rate cut served as a reminder of the vulnerabilities of the world’s second largest economy and Europe’s energy woes also weighed on investor sentiment, sending safe-haven flows to the US currency.

The dollar index was heading toward the US close up 0.75% as risk was significantly hit, with the S&P 500 falling nearly 2%, and currencies not seen as top safe havens suffered.

Adding to the dollar bid were price rises for natural gas and expectations that Fed Chair Jerome Powell will add his voice to the chorus of US policymakers touting a higher-for-longer rate path to fight inflation, which remains well above the 2% target with no prospects of returning soon.

EUR/USD fell 1.03% to 0.9936, putting in a new trend low at 0.9927 amid the broad global growth anxieties and high gas prices, which have exacerbated European growth uncertainties.

USD/JPY gains were tempered since both the dollar and yen are safe havens and thus benefited from the broad trend of risk aversion, but it still managed to advance 0.25% to 137.36, with US-Japan rate divergence likely to result in new 2022 highs above 139.38 after the upcoming Jackson Hole symposium.

GBP/USD put in a new 2022 low at 1.1744, bouncing slightly to 1.1770 as the NorAm close approached.

GBP/USD has been dogged by Britain’s G7-high inflation, which has also increased UK recession fears.

AUD/USD backed off early US gains and headed toward a loss of about 0.1% to 0.6866. US yield gains and China growth concerns were too much for aussie bulls to withstand as copper and oil held losses.

Broad risk-off trading and rising US rates weighed on bitcoin and ether, which fell slightly more than 1%. Higher rates also pushed gold lower by 0.65%.

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are his own.)