Dollar reaches its highest level in two decades with Putin’s announcement of partial mobilization

The dollar index (DXY00) on Monday fell -0.04%. The dollar also gave up an early advance and fell slightly after stocks recovered from overnight losses and moved higher, which curbed liquidity demand for the dollar.

Earlier on Monday, the American currency rose moderately after the 10-year T-note yield climbed to an 11-year high, strengthening the dollar’s interest rate differentials.

Monday’s U.S. economic news was bearish for the dollar after the Sep NAHB housing market index fell -3 to a 2-1/4 year low of 46, weaker than expectations of 47.

EUR/USD rose by +0.09%. The Euro recovered from early losses and increased as energy crisis concerns eased when European natural gas prices fell to a 1-3/4 month. Hawkish comments from ECB Vice President Guindos and Bundesbank President Nagel supported EUR/USD when they both expressed support for additional ECB rate hikes.

On Wednesday, the dollar jumped to its highest level in two decades as Russian President Vladimir Putin’s comments on military mobilization and his accusations of the West rocked markets ahead of a likely sharp interest rate hike from the US Federal Reserve.

On Wednesday, Putin ordered the country’s first military mobilization since World War Two, and warned the West that if it pursued what he called “nuclear blackmail”, Moscow would respond with force, all of its massive arsenals.

This news gave the dollar index a strong boost, the index that measures the performance of the US currency against a basket of major competing currencies, as it rose more than 0.5 percent to 110.87, the highest level since 2002.

The burden of selling due to the news fell on European currencies as Putin’s comments heightened concerns about the economic prospects for a region already suffering from the consequences of Russia’s cuts in gas supplies.

The euro fell to a two-week low of $0.9885, close to a two-decade low it reached earlier this month, and the euro fell in recent trading by 0.6 percent to $0.9912.

The pound fell 0.4 percent, hitting a new low, the lowest in 37 years, at $1.1304, even before Putin’s comments.

The dollar index has risen so far this year 16 percent and is on track to record the biggest annual increase since 1981. Analysts say the growing geopolitical uncertainty is making the dollar stronger.

On Wednesday, the Australian and New Zealand dollars also reached their lowest levels in years. The Australian dollar recorded $0.6655, its lowest level since June 2020, while the New Zealand dollar fell to $0.5877, its lowest level since April 2020.