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As markets prepare for higher rates to last longer, the dollar reaches a 20-year high.

On Monday, after Federal Reserve Chair Jerome Powell said interest rates would be kept higher for longer to rein in skyrocketing inflation, the US dollar rose to a 20-year high against other major currencies.

The dollar index, which compares the value of one currency to a group of others, reached a new two-decade high of 109.48.This put its European counterparts in a rut even if the European Central Bank’s hawkish remarks raised hopes for an early rate hike in September.

Early European trade saw the euro down a quarter of a percent at $0.99415 and approaching recent 20-year lows, while the British pound fell to a 2-1/2 year low.The marketplaces in London were closed because it was a vacation.Powell said that the Fed would raise rates as high as necessary to stifle growth and would keep them there “for some time” to lower inflation, which is currently running at more than three times the Fed’s 2% target. Powell was speaking at the Jackson Hole central banking conference in Wyoming on Friday.

Powell’s remarks supported pricing a higher Fed funds rate for a longer duration, according to Societe Generale currency strategist Kenneth Broux. “It is premature to assume that the Fed would begin lowering rates in mid-2023.”

In response, betting on a more aggressive Fed rate hike in September increased, with the likelihood of a 75 basis point move now estimated to be at 70%.The two-year bond yield reached a 15-year high of about 3.49%, driving up US Treasury yields and supporting the US dollar.

The dollar increased by 0.8% to 138.81 yen, its highest level since July 21, while the offshore yuan decreased to 6.9321 per dollar, a new two-year low.Sterling hit a 2-1/2-year low of $1.1649 before losing 0.5% to close at $1.1676.

According to Carol Kong, senior associate for currency strategy and international economics at Commonwealth Bank of Australia, “I think for this week, the (US dollar index) is going to track even higher towards 110 points, just as market participants continue to price in more aggressive tightening cycles by the major central banks.”

Isabel Schnabel, a member of the ECB board, Francois Villeroy de Galhau, the head of the French Central Bank, and Martins Kazaks, the governor of the Latvian central bank, all advocated for strong or major policy action during their speeches at the Jackson Hole Symposium.

The euro has suffered due to the EU’s energy crisis, which increases the possibility of a recession even as the likelihood of a significant ECB rate hike in September grows. During the period of August 31 to September 2, natural gas shipments to Europe are anticipated to be stopped by Russian state energy company Gazprom (GAZP.MM).

Additionally, the Australian and New Zealand dollars fell victim to selling pressure as a risk-off mood swept through global markets.The Australian dollar dropped to $0.6838, its lowest level since July 19, and the kiwi sank to $0.61, its lowest level since mid-July.

In terms of cryptocurrencies, Bitcoin gained some ground but continued to trade below the $20,000 mark that it briefly fell below over the weekend.