The US dollar strengthened against six major currencies on Wednesday, surging to near 20-year highs as investors awaited the Federal Reserve Chairman's speech on Friday for fresh indications of how aggressive the central bank is in curbing inflation.
Investors have reduced expectations that the Fed could lean toward slower rate hikes as inflation remains at 8.5% on an annual basis, well above the Fed's 2% target.
The focus of Jerome Powell's speech in Jackson Hole will be on the extent to which the economic slowdown is likely to change the rate of Fed tightening, or the need to tame inflationary pressures that will overwhelm other economic factors.
The US dollar strengthened even after data on Wednesday showed that new orders for U.S.-made capital goods. rose at a slower pace in July than the previous month, suggesting that business spending on equipment may struggle to recover after contracting in the second quarter.
Fed funds futures traders are pricing in a 59% chance that the Fed will raise rates another 75 basis points at its September meeting, and a 41% probability for a 50 basis point hike.
The US dollar index, which measures the US dollar against six major currencies, traded up 0.42% to trade at 108.99 before retreating. The euro was down 0.49% at $0.9919, after hitting a 20-year low of $0.99005 on Tuesday.
The US dollar fell on Tuesday after data showed US private sector activity was weaker than expected in August while US home sales plunged to a 6-1/2 year low in July.
The euro has been weakened by growth concerns as the region faces an energy crisis. Gas supplies in the Netherlands next month, a benchmark for Europe, rose again on Wednesday as the prospect of a three-day shutdown of Russian gas supplies via the main Nord Stream 1 pipeline left investors with a clear sense of direction.
"The sharp rise in gas prices and uncertainty about the future will continue to weigh on the euro for now," said DNB Markets FX analyst Ingvild Borgen Gjerd.
Meanwhile, commodity currencies such as the Australian and New Zealand dollars are under pressure due to concerns of slowing global growth. The Aussie lost 0.62% to $0.6886 and the kiwi slipped 0.72% to $0.6169.
