Pessimism about the outlook for the global economy on Friday boosted demand for the safe haven US dollar, while the Australian dollar, a proxy for global growth, tumbled to a two-year low.
Rampant inflation and a rush by central banks to raise rates and stem the flow of cheap money has fueled sell-offs across markets and lifted assets seen as safer bets.
“When people get worried they still buy dollar assets,” said Joseph Trevisani, a senior analyst at FXStreet.com in New York.
Photo: Reuters
The US dollar gained on Friday, even as concerns about an economic downturn sent benchmark 10-year US Treasury yields to one-month lows.
The greenback is being swayed between concerns that the US Federal Reserve would continue to hike rates aggressively to blunt soaring price pressures, and the likelihood that its tightening would hurt the economy.
“You have weakening rates against the dollar competing against fear of a global recession and enormous amounts of debt and all sorts of other problems,” Trevisani said.
Expectations on how high the US central bank would be able to raise rates have fallen, with traders now pricing in a peak rate of 3.33 percent in March, down from previous expectations of about 4 percent before the Fed’s June meeting. The Fed’s benchmark rate is 1.58 percent at present.
The US dollar index gained 0.42 percent against a basket of currencies to 105.12, up 0.9 percent from a week earlier. It is holding just below a 20-year high of 105.79 reached on June 15.
The New Taiwan dollar declined against the US dollar, losing NT$0.029 to close at NT$29.755, down 0.08 percent from a week earlier.
The euro fell 0.78 percent to US$1.0400. The single currency reached a five-year low of US$1.0349 on May 13.
Data on Friday showed that eurozone inflation hit another record high in June, while manufacturing production in the bloc fell for the first time in two years.
The European Central Bank is expected to raise interest rates this month for the first time in a decade, although economists are divided about the size of any hike.
Risk-sensitive currencies underperformed. The Australian dollar fell as low as US$0.6764, the weakest since June 2020.
“It’s a risk-off start to the second half of the year with equities and commodities down, so the dollar is stronger pretty much across the board,” said Kenneth Broux, an FX strategist at Societe Generale in London.
The Reserve Bank of Australia decides policy on Thursday, and markets expect a half-point hike to its key rate.
Sterling reached a two-week low of US$1.20 a day after official data showed a record shortfall in Britain’s current account deficit early this year.
Additional reporting by CNA, with staff writer
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