Band Herbert Lash
NEW YORK, June 22 (Reuters) – JThe dollar fell on Wednesday as U.S. Treasury yields slid on fears the U.S. economy could slip into recession after Federal Reserve Chairman Jerome Powell said higher rates are painful but are the US central bank’s way of slowing inflation.
The Fed is not trying to engineer a recession to curb inflation, but is fully committed to controlling prices even if it risks causing an economic slowdown, Powell told a Senate Banking Committee hearing American.
“Higher interest rates are painful, but it’s the tool we have to bring inflation down,” Powell said.
Investors fear that aggressive interest rate hikes by major central banks at tme risk of inflation leading to a severe global slowdown or recession. Higher rates have strengthened the dollar, but the euro has gained in recent days on European Central Bank plans to raise rates to contain inflation.
“The Federal Reserve’s resolve paves the way for bigger moves by other central banks, pushing up the euro, for example, and the Canadian dollar,” said Kathy Lien, BK’s chief executive. Asset Management in New York.
“The sell-off in US Treasuries tells us that the market wasn’t surprised by anything Powell said. I would attribute the dollar’s weakness more to the fact that the greenback is moving in line with Treasury yields” , Link said.
UK consumer price inflation hit a 40-year high of 9.1% in May, while Canadian annual inflation jumped to 7.7% last month to reach the highest rate since January 1983. The data is the latest to show that consumer prices are higher than expected.
The British pound initially lost almost 1% falling to an almost one-week low of $1.2162, but it has parried most of the losses. The Canadian dollar appreciated against the American currency, moving further away from the level of 1.30 that it had reached last Friday and Monday.
“Powell is giving the green light to further dollar strength against the Japanese yen,” Lien said.
Market participants are torn between acknowledgment that central banks are tightening financial conditions more aggressively than expected a month or two ago and concern over the economic fallout, said Marc Chandler, chief market strategist at Bannockburn Global. Forex.
“Sentiment is choppy partly because we don’t know when inflation will peak,” Chandler said. “Everything is dictated by inflation, inflation expectations and central bank policy.”
The dollar index =USD fell 0.31%, the euro EUR= up 0.47% to $1.0574. The yen strengthened 0.36% to 136.14 to the dollar, while the pound GBP= was down 0.04% at $1.2267.
The safe haven dollar gained ground against most peers. The yen hit a new 24-year low as rising US and European bond yields contrasted with low Japanese interest rates.
“Recession fears are growing as central bankers slow demand to curb inflation. Pro-cyclical currencies are in retreat and the dollar remains in high demand,” said Chris Turner, global head of markets at ING.
Analysts see no immediate end to a selloff that has weakened the yen 18% this year against 115.08 at the end of 2021.
Currency rates at 2:08 p.m. (6:08 p.m. GMT)
Closing of the previous session
Percentage change since the beginning of the year
New Zealand Dollar/Dollar
Global exchange rateshttps://tmsnrt.rs/2RBWI5E
(Reporting by Herbert Lash, additional reporting by Joice Alves and Alun John; Editing by Muralikumar Anantharaman, Mark Potter, Emelia Sithole-Matarise and Richard Chang)
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