Dollar strengthens as global growth and inflation worries mount

Investors sought the safety of the dollar and sold the euro as concerns over further interest rate hikes and slowing global growth plagued markets.

The U.S. dollar index, which measures the greenback’s strength against a basket of six other currencies, rose 0.6 percent to 104.5, a level last touched in 2002. Other major currencies weakened, with the euro down about 1 percent to $1.04, its lowest since 2017.

Stocks rebounded after a sharp sell-off in the previous session, but major commodities such as copper fell and bond yields came under pressure again as worries about U.S. economic growth plagued investors. At the same time, fund managers worry that rising inflation will force central banks such as the Federal Reserve to take aggressive action to control inflation.

“The Fed is under pressure to raise rates again, a move that has to come quickly into the summer. Then we’ll see the impact [economic] Growth in the second half of the year,” said Juliette Cohen, strategist at CPR Asset Management.

Sterling slips 0.3% against dollar as data shows UK economy Accidentally shrunk Further pressure was put on the pound for the first time this year. China’s yuan fell 1 percent to 6.78 against the dollar, the latest sign that Beijing has allowed a tightly controlled devaluation of the yuan to stimulate the economy. weak demand export to the country.

Given concerns about a slowing economy and further tightening of interest rates, “it is not surprising to see the dollar remain strong,” analysts at ING wrote.

European stocks recovered some of their early losses, but U.S. markets struggled to find direction after sharp losses on Wednesday. The benchmark U.S. S&P 500 fell 0.9%, while the tech-heavy Nasdaq Composite lost 0.6%.

In Europe, the Euro Stoxx 600 and Germany’s Dax both recovered from earlier losses to close down 0.6%, while the FTSE 100 closed down 1.6%. Japan’s Topix and Hong Kong’s Hang Seng fell 1.2% and 2.2%, respectively.

“Global equities are pricing in three key stagflation themes: rising inflation, slower growth and higher interest rates,” said Citi analyst Robert Buckland.

In the bond market, the 10-year Treasury yield fell 0.78 percentage points to 2.67%. As bond prices rise, yields fall.

Cohen added that declining fiscal support during the pandemic, supply chain bottlenecks and a slowdown in China due to strict coronavirus lockdowns also weighed on growth. “It’s a bleak environment for the market,” she said.

The price of copper, a gauge of economic sentiment, fell below $9,000 a tonne for the first time in more than six months due to its widespread use.

“Chinese demand is extremely weak,” said Colin Hamilton, an analyst at BMO Capital Markets, although smelter restrictions that once supported prices in China have eased.

Additional reporting by Neil Hume and Jennifer Creery

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