U.S. dollar soars to two-decade high as Fed flags more large hikes



* Euro slides to two-decade lows

* Fed raises rates by 75 bps, as expected; flags more hikes

By Gertrude Chavez-Dreyfuss

NEW YORK, Sept 21 (Reuters) - The dollar surged to a fresh two-decade high on Wednesday after the Federal Reserve raised interest rates by another 75 basis points and signalled more large increases at its upcoming meetings.

Dollar gains were limited since the Fed decision was widely expected. Still, since U.S. rates will be higher for longer, the trend remains dollar-supportive for some time, analysts said.

The Fed's new projections showed its policy rate rising to 4.4% by the end of the year, before peaking at 4.6% in 2023 to curb uncomfortably high inflation. Rate cuts are not expected until 2024.

Fed Chair Jerome Powell, in his press briefing, said there is no painless way to bring inflation down, reiterating that it wants to act aggressively now and keep at it. He added that the Fed's actions are likely to result in slower growth and higher unemployment.

The dollar index hit a fresh 20-year high of 111.63 =USD in the aftermath of the Fed rate hike, and was last up 0.7% at 110.97.

"We expect the U.S. dollar to remain firm in the short run but we remain reluctant to factor in additional, sustained U.S. dollar gains from here and we think it would be complacent to dismiss out of hand downside risks here," said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.

He said that the dollar has become significantly overvalued. Since the beginning of the year, the dollar index has soared nearly 16%, the largest yearly percentage gain since at least 1972, when Refinitiv started the data series.

Osborne also said higher U.S. rate expectations have already been priced in the dollar, with the peak fed funds rate, or the U.S. central bank's policy rate, having advanced by more than 100 bps since August.

The euro, the largest component in the dollar index, dropped to a 20-year low, hitting $0.9810 EUR-EBS . Europe's single currency last changed hands at $0.9852, down 1.2%.

Against the yen, the dollar posted minor gains compared to other currencies, rising as high as 144.695 yen. The greenback last traded at 143.98 yen, up 0.2% on the day. Traders remained wary of pushing the dollar higher given the threat of Japan intervention to boost the yen.

"They (the Fed) have a brief window to act aggressively, and they seem eager to use it," said Jan Szilagyi, co-founder and CEO of Toggle AI, an investment research firm.

"There is another reason to frontload the hikes. Public and market tolerance for tighter monetary policy is far higher with the unemployment rate below 4%, a historic low."

Sterling fell to a new 37-year low of $1.1237 and last traded at $1.1272, down nearly 1% GBP=D3 .

Earlier in the session, the dollar posted gains after a decision by Russian President Vladimir Putin to mobilize more troops for the conflict in Ukraine.

Putin on Wednesday called up 300,000 reservists to fight in Ukraine and said Moscow would respond with the might of all its vast arsenal if the West pursued what he called its "nuclear blackmail" over the conflict there.

European currencies bore the brunt of selling in foreign exchange markets as Putin's comments exacerbated concern about the economic outlook for a region already hit hard by Russia's squeeze on gas supplies to Europe.

Osborne noted that elevated geopolitical risks have underpinned the dollar as a safe haven and alternatives are scarce in the developed world.

"We think the time is coming for a U.S. dollar correction but dollar bears will have to remain patient for a little longer," he said.

========================================================

Currency bid prices at 3:46 PM (1946 GMT) Description

RIC

Last

U.S. Close Pct Change

YTD Pct

High Bid

Low Bid

Previous

Change

Session

Dollar index

=USD

111.2000

110.1700

+0.94%

16.241%

+111.6300 +110.1200 Euro/Dollar

EUR=EBS

$0.9853

$0.9969

-1.16%

-13.33%

+$0.9975

+$0.9810 Dollar/Yen

JPY=EBS

143.9500

143.7100

+0.18%

+25.06%

+144.6950 +143.3500 Euro/Yen

EURJPY=

141.86

143.28

-0.99%

+8.86%

+143.5900 +141.7500 Dollar/Swiss

CHF=EBS

0.9665

0.9640

+0.23%

+5.93%

+0.9699

+0.9621 Sterling/Dollar GBP=D3

$1.1279

$1.1381

-0.84%

-16.55%

+$1.1384

+$1.1237 Dollar/Canadian CAD=D3

1.3442

1.3368

+0.56%

+6.32%

+1.3446

+1.3358 Aussie/Dollar

AUD=D3

$0.6641

$0.6691

-0.74%

-8.64%

+$0.6705

+$0.6622 Euro/Swiss

EURCHF=

0.9523

0.9615

-0.96%

-8.16%

+0.9618

+0.9517 Euro/Sterling

EURGBP=

0.8733

0.8760

-0.31%

+3.96%

+0.8769

+0.8712 NZ

NZD=D3

$0.5858

$0.5895

-0.61%

-14.41%

+$0.5911

+$0.5844 Dollar/Dollar

Dollar/Norway

NOK=D3

10.3185

10.3480

-0.11%

+17.33%

+10.4015

+10.2550 Euro/Norway

EURNOK=

10.1718

10.3001

-1.25%

+1.59%

+10.3120

+10.1505 Dollar/Sweden

SEK=

11.0425

10.8937

+0.11%

+22.45%

+11.0974

+10.8877 Euro/Sweden

EURSEK=

10.8742

10.8619

+0.11%

+6.26%

+10.9247

+10.8596



World FX rates Link



Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Dhara Ranasinghe in London; Editing by
Kirsten Donovan and Deepa Babington

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