The dollar hit a fresh two-decade peak against a basket of currencies on Wednesday on the back of rising Treasury yields, while sterling languished near a record low on concerns over Britain’s radical tax cuts to spur growth.

The US dollar index hit a new high of 114.68 in Asia trade and was last up 0.42 per cent at 114.62.

Meanwhile, benchmark US 10-year Treasury yields rose to 4pc for the first time since 2010, topping at 4.004pc. The two-year yields stood at 4.2912pc.

“It’s a combination of the spillover from the UK … where the gilt yields have gone ballistic. And that has spilled over into other DM bond markets, so there’s a bit of a ricochet effect,” said Moh Siong Sim, a currency strategist at Bank of Singapore.

“And of course … this is against the backdrop of a very determined message by the Fed to do whatever it takes to bring inflation down.”

Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Minneapolis Federal Reserve Bank President Neel Kashkari had reiterated the Fed’s hawkish stance overnight, with Evans saying that the central bank will need to raise interest rates to a range between 4.5pc and 4.75pc.

Sterling was down nearly 1pc to $1.0634, reversing a marginal 0.4pc gain in the previous session and still nursing deep losses after its slide to an all-time low of $1.0327 at the start of the week.

Bank of England Chief Economist Huw Pill said overnight that the central bank is likely to deliver a “significant policy response” to finance minister Kwasi Kwarteng’s huge tax cuts.

But he added that the central bank wants to wait until its next scheduled meeting in November before making its move, quashing market speculations of a potential inter-meeting interest rate hike.

“For the near-term, I think sterling’s going to remain pretty weak from here,” said Carol Kong, senior associate for international economics and currency strategy at the Commonwealth Bank of Australia.

“It’s basically a crisis of confidence. It’ll be up to the UK government to resolve this … rather than Bank of England.”

The stronger dollar pushed other currencies to multi-year lows on Wednesday, with the Aussie hitting a trough at $0.6389, its lowest since May 2020. The kiwi lost about 1pc to $0.5565, similarly its lowest since March 2020.

The Chinese offshore yuan fell as far as 7.2349 per dollar, the lowest level since such data became available in 2011.

A source had told Reuters late on Tuesday that Chinese monetary authorities are asking local banks to revive a yuan fixing tool it abandoned two years ago as they seek to steer and defend the rapidly weakening currency.

Euro lost 0.4pc to $0.9555, not far off from its recent 20-year trough of $0.9528, with the latest flare-up in the euro zone’s gas crisis adding to the gloomy outlook for the single currency.

Europe was on Tuesday investigating what Germany, Denmark and Sweden said were attacks that had caused major leaks into the Baltic Sea from two Russian gas pipelines at the centre of an energy standoff.

Elsewhere, the yen last bought 144.68 per dollar, little helped by an intervention from Japan to prop up the fragile currency last week.

“What would really change the value of the yen will be if the BOJ gives up or resets their yield curve control policy,” said Pablo Calderini, chief investment officer at hedge fund Graham Capital.

“As long as you keep a rate differential of 4pc, it will be really hard to see a significant appreciation of the yen.”