* The dollar index is at a two-decade high
* Euro returns to two-decade lows
By Dhara Ranasinghe
LONDON, Sept 21 (Reuters) – The dollar hit a two-decade high on Wednesday as comments from Russian President Vladimir Putin loomed ahead of another potentially aggressive rate hike from the U.S. Federal Reserve, roiling markets.
Putin has ordered Russia to move for the first time since World War II, warning that Moscow will respond with the full force of its vast arsenal if the West continues what it calls its “nuclear blackout.”
The news sent the dollar index, which measures the greenback against other major currencies, up more than 0.5% to 110.87 – its highest level since 2002.
European currencies faced selling pressure in foreign exchange markets as Putin’s comments raised concerns about the region’s economic outlook as Russia increased gas supplies to Europe.
The euro fell to a two-week low of $0.9885, hitting two-decade lows earlier this month. It closed down 0.6% at 0.9912.
Sterling, which fell 0.4%, fell to a new 37-year low of $1.1304 even before Putin began speaking.
“Russia headlines are stealing the Fed’s thunder,” said Societe Generale currency strategist Kenneth Brooks.
“Concerns about an escalation in the conflict will hurt European currencies. And if the Fed is hawkish tonight, you could see losses snowball.”
Later Wednesday, the Federal Reserve is expected to raise interest rates by three-quarters of a percentage point for a third straight time and signal how much and how much more borrowing costs will need to rise to tame potentially volatile inflation.
The policy decision due at 1800 GMT will mark the latest step in a coordinated policy shift by global central banks aimed at curbing foreign exchange shocks as the world economy recovers and the dollar rises.
The dollar index has risen nearly 16 percent this year and is set for its biggest annual jump since 1981.
Analysts said that the backdrop of geopolitical uncertainty would add to the dollar’s strength.
“We certainly have investors flocking to safe havens, and we’ve got speculation that we could see another rate hike from the Federal Reserve today,” said Danny Hewson, a financial analyst at AJ Bell in London.
“So the dollar already looks ridiculous and obviously the proximity of Ukraine to countries in Europe makes people think about what the situation would be like if the war in Ukraine were to get bigger.”
Meanwhile, the Australian and New Zealand dollars hit multi-year lows on Wednesday. The Australian dollar hit $0.6655, its lowest since June 2020, while the kiwi fell to $0.5877, its lowest since April 2020.
(Reporting by Dhara Ranasinghe; Additional reporting by Bansari Mayur Kamdar; Editing by Edwina Gibbs)