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Higher dollar; Risk Sentiment Falls as Central Banks Tighten Policy By

By on June 8, 2022 0

© Reuters.

By Peter Nurse – The U.S. dollar rose in early European trading on Wednesday as risk sentiment faded as central banks tighten monetary policy, likely weighing on global economic growth.

As of 03:05 ET (07:05 GMT), the , which tracks the greenback against a basket of six other currencies, was trading up 0.2% at 102.562.

Central banks around the world began to respond to soaring inflation by tightening monetary policy, which had been very accommodative in the wake of the COVID-19 pandemic.

Earlier on Wednesday, the key rose for a second consecutive month by 50 basis points to 4.90%, following a similar move on Tuesday.

The U.S. is set to raise rates by 50 basis points next week and again in July, as the market meets on Thursday and is expected to lay the groundwork for an interest rate hike next month.

This has impacted the global economic outlook, with the World Bank cutting its estimate for global growth this year to 2.9% from a January forecast of 4.1%, citing soaring commodity prices, supply disruptions and actions by central banks to raise interest rates. rates.

The obvious exception is the Bank of Japan, which has given no indication of abandoning ultra-accommodative monetary policies, with BOJ Governor Haruhiko Kuroda recently firmly reiterating that no tightening plan is in the works. discussion.

As a result, the yen rose 0.5% to 133.24, hitting a new 20-year high, while the yen also slipped to a seven-year low against the euro.

“Markets are seriously testing the resolve of the Japanese authorities to act to support the currency, and simple verbal intervention may not be enough this time,” ING analysts said in a note.

Elsewhere, it fell 0.1% to 1.0687 after rising just 0.7% in April, below the expected 1.0% growth. It adds further evidence, after data released on Tuesday showed a 2.7% decline in the same month, to the idea that the euro zone’s largest economy could suffer a quarter of economic contraction.

fell 0.1% to 1.2571 after a period of volatile trading amid political unrest after British Prime Minister Boris Johnson survived a vote of no confidence.

“We believe markets are overvaluing the impact of recent political noise on the UK economy and expect the pound’s volatility to decline over the coming days, with focus potentially shifting to other factors such as whether Bank of England policy or a slowing economic outlook,” ING added.

The risk-sensitive index fell 0.4% to 0.7199 in the wake of Tuesday’s hike by the Reserve Bank of Australia, fell 0.5% to 0.6456, but edged up slightly at 6.6726.