The dollar hit a new 20-year high during Wednesday’s European session on rising recession fears as the Fed tightened its tone and raised U.S. bond rates.

At 9:20 a.m. ET, the Dollar Index, which tracks the U.S. currency against a basket of six currencies, was advancing 0.28 percent at 114.345 after hitting a new two-decade high at 114.653 earlier in the session.

The Federal Reserve has made it clear that its battle against inflation is currently its most important mission and would continue to raise interest rates with intensity, even if this could send the country’s economy into recession.

The message was reinforced last night by Chicago Fed Presidents Charles Evans, Neel Kashkari of Minneapolis, and James Bullard of St. Louis, who said that rates would need to remain high “for some time in order to bring inflation under control.”

That speech caused the rate on the ten-year U.S. Treasury bond to top 4 percent for the first time since 2010, before correcting and stabilizing near 3.982 percent.

Pound Sterling

In addition, sterling retreated 1.03% against the dollar to 1.0619, still near historic lows, due to the announcement of a radical tax cut plan by the new British government, which is expected to continue to resonate with markets.

The International Monetary Fund openly criticized the new economic strategy on Tuesday, stating that “given the high inflationary pressures in a number of countries, such as the UK, we do not recommend implementing large and undirected fiscal packages at this juncture, lest fiscal policy end up in conflict with monetary policy.”

Sterling’s slide prompted the Bank of England’s chief economist Huw Pill on Tuesday to state that the institution could undertake a “significant” interest rate hike at its next meeting in November.

The euro, meanwhile, depreciated 0.16% against the dollar to 0.9575, not far from the 20-year low of 0.9528, much of it due to the energy crisis experienced by the euro zone.

Gazprom (MCX:GAZP), which holds Russia’s gas monopoly, said on Tuesday that it might include Ukrainian gas operator Naftogaz Ukrainy on the list of entities sanctioned by Moscow, which could disrupt virtually all of its remaining supply to the EU.

This came in the wake of accusations of sabotage against Moscow following the identification of major leaks from two Russian pipelines located in the Baltic Sea at the center of the energy standoff.

Consumer sentiment in Germany is expected to hit a new record low in October, with GfK forecasting Wednesday that its consumer confidence index will fall to -42.5 next month, a drastic downward revision from September’s reading of 36.8.

The yen appreciated against the dollar to 144.58, still near the important 145 level, even after Japan intervened to support its fragile currency.

The more risk-sensitive Australian dollar declined 0.37% against the greenback to 0.6410, near the lowest level since May 2020, while the yuan depreciated 0.80% against the U.S. currency to 7.2344, its weakest level since the 2008 financial crisis.