Dollar soars to two-decade high as Putin shakes FX market ahead of Fed



* Dollar index at two-decade high

* Euro slides back toward two-decade lows

* Putin announces partial troop mobilization for Ukraine

* Markets gauging Fed hawkishness in Powell briefing

By Dhara Ranasinghe and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK, Sept 21 (Reuters) - The dollar surged to a new two-decade high on Wednesday just ahead of another expected aggressive Federal Reserve interest rate hike, as investors fled for safety 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.

The news propelled the dollar index, which measures the greenback's value against six major currencies, to 110.87 =USD , its strongest level since 2002.

The dollar index is up almost 16% this year and set for its biggest annual surge since 1981. It was last trading at 110.71, up about 0.5% on the day.

"Most of the dollar moves today are Putin-related," said Steven Englander, head of global G10 FX research and North America macro strategy at Standard Chartered in New York..

"When I look at my table, the five worst performing currencies are the Swedish crown, Polish zloty, Czech koruna, Hungarian forint and the euro. That's more a Putin worry because of hints that Russia might escalate the conflict in Ukraine and on what limits he puts on the weapons they use."

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.

The euro fell to a two-week low of $0.9885 EUR=EBS , within sight of two-decade lows touched earlier this month. It was last down 0.7% at $0.9901.

Sterling fell to a fresh 37-year low of $1.1304 GBP=D3 and was last down 0.5% at $1.1335

Later on Wednesday, the Fed is expected to lift interest rates by three-quarters of a percentage point for a third straight time and signal how much further and how fast borrowing costs may need to rise to tame inflation.

The policy decision, due at 1800 GMT, will mark the latest move in a synchronized policy shift by global central banks that is testing the resilience of the world economy and the ability of countries to manage exchange rate shocks as the value of the dollar soars.

"What the market is looking for is whether (Fed Chair Jerome) Powell says the Fed does not know how far they have to go and they'll go as far as they need to go," said Standard Chartered's Englander.

"If someone asks him whether he sees rates going to 5% and he says he doesn't see it, but doesn't rule it out if that's needed to get inflation down, then that would be really hawkish and means they're opening up rates to an even higher range than what the market anticipates."

The Australian and New Zealand dollars meanwhile plumbed multi-year lows. The Aussie dollar AUD=D3 hit a trough of US$0.6655, its lowest since June 2020, while the New Zealand currency NZD=D3 fell to US$0.5873, its lowest since April 2020.

Against the battered yen, the dollar was up 0.2% at 143.97, holding off recent 24-year peaks JPY=EBS

"It was interesting to me that dollar/yen dipped on the news of the announcement, potentially indicating a return of the yen's safe-haven credentials which have been absent for much of the year," said Colin Asher, a senior economist at Mizuho Corporate Bank.

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

Currency bid prices at 10:42AM (1442 GMT) Description

RIC

Last

U.S. Close Pct Change

YTD Pct

High Bid

Low Bid

Previous

Change

Session

Dollar index

=USD

110.8300

110.1700

+0.61%

15.855%

+110.8800 +110.1200 Euro/Dollar

EUR=EBS

$0.9895

$0.9969

-0.74%

-12.96%

+$0.9975

+$0.9885 Dollar/Yen

JPY=EBS

143.9650

143.7100

+0.19%

+25.07%

+144.1950 +143.3500 Euro/Yen

EURJPY=

142.48

143.28

-0.56%

+9.34%

+143.5900 +141.9300 Dollar/Swiss

CHF=EBS

0.9643

0.9640

+0.09%

+5.78%

+0.9683

+0.9622 Sterling/Dollar GBP=D3

$1.1326

$1.1381

-0.46%

-16.23%

+$1.1384

+$1.1304 Dollar/Canadian CAD=D3

1.3401

1.3368

+0.25%

+6.00%

+1.3405

+1.3361 Aussie/Dollar

AUD=D3

$0.6658

$0.6691

-0.46%

-8.38%

+$0.6703

+$0.6655 Euro/Swiss

EURCHF=

0.9540

0.9615

-0.78%

-8.00%

+0.9618

+0.9535 Euro/Sterling

EURGBP=

0.8733

0.8760

-0.31%

+3.98%

+0.8769

+0.8721 NZ

NZD=D3

$0.5879

$0.5895

-0.25%

-14.10%

+$0.5906

+$0.5873 Dollar/Dollar

Dollar/Norway

NOK=D3

10.3010

10.3480

-0.80%

+16.52%

+10.4015

+10.2650 Euro/Norway

EURNOK=

10.1968

10.3001

-1.00%

+1.84%

+10.3120

+10.1640 Dollar/Sweden

SEK=

11.0034

10.8937

+0.20%

+22.02%

+11.0367

+10.8877 Euro/Sweden

EURSEK=

10.8834

10.8619

+0.20%

+6.39%

+10.9247

+10.8596



World FX rates Link
Dollar index at two-decade high ahead of Fed Link



Reporting by Dhara Ranasinghe in London and Gertrude Chavez-Dreyfuss in New York; Additional reporting by
Lucy Raitano; Editing by Edwina Gibbs, Catherine Evans and Mark Heinrich

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