The dollar shot higher on Monday, briefly scaling fresh 20-year highs against a basket of other currencies, as Federal Reserve Chair Jerome Powell signalled interest rates would be kept higher for longer to bring down uncomfortably high inflation.
The dollar index , which measures the currency's value against a basket of peers, scaled a fresh two-decade peak of 109.48 before retreating as the European session wore on.
It held around 0.65% firmer against Japan's yen, while China's yuan breached the key threshold of 6.9 per dollar and Britain's pound hit a fresh 2-1/2 year low.
The euro managed to claw back some ground and was last up 0.3% at $0.9992 as hawkish European Central Bank comments lifted expectations for a supersized September rate hike.
A comment by German Economy Minister Robert Habeck that he expects gas prices to fall soon, with Germany making progress on its storage targets, may also have supported the euro.
Powell told the Jackson Hole central banking conference in Wyoming on Friday that the Fed would raise rates as high as needed to restrict growth, and would keep them there "for some time" to bring down inflation that is running at more than three times the Fed's 2% goal.
"Powell's comments endorsed the pricing of a higher Fed funds rate for a longer period," said Kenneth Broux, a currency strategist at Societe Generale. "The assumption that the Fed would start cutting rates in mid-2023 is premature."
Money markets ramped up bets for a more aggressive Fed rate hike in September, with the chances of a 75 basis point hike now seen around 70%. U.S. Treasury yields shot up, with two-year bond yields hitting a 15-year high at around 3.49% , bolstering the greenback.
The onshore yuan finished domestic trade at 6.9210 per dollar, the weakest close since Aug. 20, 2020, while the offshore yuan fell to a fresh two-year low of 6.9325 per dollar.
