SINGAPORE — The dollar benefited from a bout of risk aversion on Friday as hawkish comments from global central banks, including the Federal Reserve, fueled fears that their aggressive monetary tightening could push economies into a deeper downturn. .
The pound struggled to hold on to gains from a bigger-than-expected 50 basis point rate hike by the Bank of England (BoE) on Thursday in response to lingering inflation, with traders also worried about a recession in the UK.
Although higher rates generally support currencies, the risk of them triggering an economic slowdown has prompted some investors to seek safe-haven assets like the US dollar.
The pound was last down 0.07% at $1.2740, after surging briefly on the BoE’s rise to a near-year high, before being pulled lower. It was on track for a weekly loss of more than 0.5%, snapping three consecutive weeks of gains.
“With the Bank of England set to raise rates significantly, we expect the UK economy to come under further pressure by the end of 2023 and expect growth to stagnate or even contract. economy,” said Nick Bennenbroek, international economist at Wells Fargo.
“It is only once there are clearer signs of slowing growth and decelerating inflation that we believe these factors will convince the Bank of England to end its crunch cycle.”
The Turkish lira slid to a record high of 25.589 against the US dollar, after Turkey’s central bank rose 650 basis points to 15% missed expectations on Thursday.
READ: Turkey offers big rate hike to 15% but U-turn remains disappointing
In other currencies, the dollar rose overall and settled near an over-seven-month high against the yen at 142.90. The Japanese currency has come under renewed pressure as the Bank of Japan (BOJ) continues to maintain its ultra-dovish stance against hawkish peers elsewhere.
Data released on Friday showed Japan’s core consumer prices remained above the BOJ’s 2% target for the 14th consecutive month, while separate data showed its manufacturing activity slipped back. contraction in June and service sector growth slowed for the first time in seven months.
The euro slipped 0.04% to $1.0950, while the US dollar rose 0.05% against a basket of six major peers at 102.44.
Fed Chairman Jerome Powell said on Thursday the central bank would move interest rates at a “cautious pace” from here, with an overwhelming number of members of the Federal Open Market Committee seeing further rate hikes. upcoming rate.
READ: Fed’s Powell in testimony says fighting inflation has ‘a long way to go’
Money markets are now pricing in a 74% chance that the Fed will raise rates by 25 basis points at its policy meeting next month.
The Swiss National Bank and the central bank of Norway also signaled that further tightening was likely after raising rates by 25 basis points and 50 basis points, respectively, on Thursday.
“Most central banks in the West are now more hawkish than expected,” said Tina Teng, market analyst at CMC Markets.
READ: Major central banks aren’t done with rate hikes yet
“Inflation is high and interest rates also continue to rise. There is now a slowdown in economic growth, (which could) probably also cause a potential recession. So the sentiment is actually not not great.
The risk-sensitive Australian dollar fell 0.16% to $0.6746, after falling nearly 0.6% on Thursday, while the New Zealand dollar fell 0.05% to $0.6174 , after falling 0.4% in the previous session.
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