LONDON—The safe haven dollar gained towards fresh two-decade highs versus major rival currencies on Monday, supported by fears over a global economic slowdown and bets on steep interest rate hikes by the U.S. Federal Reserve.
The yen was among a host of currencies swept lower on the day, to its lowest level versus the dollar since 1998, as the gap between Japanese and U.S. benchmark yields widened after red hot U.S. inflation data on Friday.
A sell-off across markets saw European stocks fall for a fifth straight session, while Bitcoin tumbled 9 percent to 18-month lows around $24,000.
The dollar index—which tracks the greenback against six major peers—gained as much as 0.5 percent on the day to 104.75, close to the two-decade peak of 105.01 hit in May. It was last up 0.2 percent at 104.63.
Central banks’ efforts to curtail runaway inflation will remain in focus this week.
The Federal Reserve and the Bank of England are expected to raise interest rates at their meetings and there is a chance the Swiss National Bank will do the same.
The Bank of Japan (BoJ) has so far resisted pressure to tighten policy, weakening the country’s currency. The policy divergence has sent the yen down more than 15 percent against the dollar since early March.
The yen fell as much as 0.6 percent on the day to 135.22 yen per dollar, its lowest since 1998. It was last broadly flat at 134.37 yen per dollar.
Japan’s top government spokesperson said on Monday that Tokyo stood ready to “respond appropriately” if needed.
“Overall the fundamental developments continue to favour further yen weakness [in] the near-term but market participants will be more wary of the risk of intervention and/or a hawkish shift in BoJ policy in the week ahead,” currency analysts at MUFG said in a note.
The downward pressure on the yen could encourage speculation of a return to yen weakness not seen since the Asian financial crisis in 1997, when it hit 140.00—the last time Japan directly intervened to support the currency, the note added.
The euro, sterling, and the Swiss franc all fell to around four-week lows versus the dollar on the day.
The euro slipped as much as 0.5 percent to $1.04560, and was last down 0.3 percent at $1.04775.
Sterling fell 0.8 percent to $1.22165, after data showed Britain’s economy unexpectedly shrank in April.
The Swiss franc dropped as much as 0.5 percent to 0.99230 franc per dollar.
By Iain Withers