Dollar index hits 20-year high, sterling falls against dovish BoE

NEW YORK, May 5 (Reuters) – The dollar hit a 20-year high against a basket of currencies on Thursday as a sharp sell-off in stocks boosted demand for the safe-haven currency and the Federal Reserve was seen as tightening monetary policy more than peers.

Stocks fell on Thursday as investors feared the Fed would need to take more drastic measures to bring inflation under control. Read more

The greenback fell on Wednesday and stocks gained, after Fed Chairman Jerome Powell told reporters that policymakers were not actively considering 75 basis point moves going forward. It came after the US central bank raised rates by 50 basis points, as widely expected. Read more

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“Markets applauded the Fed’s move against the dollar as it helped ease fears of aggressive rate hikes pushing the economy into recession,” said senior market analyst Joe Manimbo. at Western Union Business Solutions in a report.

“The dollar rebounded, however, as rates still looked on track to more than double (1.9%) in July and potentially triple (2.7%) by the end of the year, a prospect resolutely hawkish that sets the Fed apart from its main rivals,” he added.

The dollar index hit 103.94, the highest since December 2002, before falling back to 103.73, up 1.16% on the day.

The pound fell to its lowest level since June 2020 after the Bank of England raised interest rates to their highest level since 2009 but warned the economy was at risk of a recession. Read more

“The Bank of England has been extremely accommodating,” said Erik Nelson, macro strategist at Wells Fargo in New York. They are “essentially telling the markets that they are completely overpricing the path of the discount rate.”

The British currency was last down 2.25% at $1.2351.

The euro was also shaken after German data showed industrial orders in March suffered their biggest monthly decline since last October. Read more

The single currency fell as the region grapples with weaker growth and energy disruptions due to sanctions imposed on Russia after its invasion of Ukraine.

It fell to $1.0518, down 0.98%, and is holding just above a five-year low of $1.0470 hit last Thursday.

Investors will focus on US inflation data for further clues about how aggressive the Fed is in its tightening policy.

The main US economic release this week will be the government’s April jobs report on Friday, while consumer price data is also due on Wednesday.

New jobless claims in the United States hit a more than two-month high last week, but remained at a level consistent with tighter labor market conditions and further wage increases that could keep inflation at a high level for some time, according to Thursday’s data. Read more

Bid rates for currencies at 3:00 p.m. (1900 GMT)

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Reporting by Karen Brettell; Editing by Andrea Ricci and Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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