Following a Wall Street bounce after a string of losses, most markets saw a rare uptick on Thursday, and confidence was boosted by Australia’s central bank chief’s dovish remarks about upcoming interest rate hikes.
However, the dollar started to rise again as additional significant rises in borrowing costs were anticipated from the Federal Reserve and European Central Bank.
Fears that efforts by global central banks to tame out-of-control inflation by raising borrowing costs could trigger new recessions in certain key economies have been devastating stocks for weeks.
As a result of the influx of investors seeking better profits and a safe haven hedge against uncertainty and global unrest, the dollar has risen steadily against its key peers.
The US dollar reached a 37-year high against the pound on Wednesday, and it was also approaching a 32-year high above 147.60 yen as a result of the Bank of Japan’s decision not to tighten its monetary policy, which was viewed as the main catalyst for that move.
However, Japanese officials claimed to be monitoring pricing changes and offered a suggestion of potential enforcement in the event that nothing changed.
Before the European Central Bank is likely to raise interest rates significantly later in the day, the euro is currently holding its own.
The Reserve Bank of Australia’s Philip Lowe stated that the argument for a slower pace of monetary tightening gained strength as rates rose, therefore there was some hope. The remarks gave rise to a glimmer of hope that central banks could eventually be prepared to rethink their strategy.
Australian bond yields, the local currency, and US Treasury yields all declined.
As long as the Fed maintains raising interest rates, experts are confident that the US dollar will continue to draw significant interest.
Vice Chair Lael Brainard supported those opinions and cautioned that rate increases will continue until prices were fully under control.
In remarks prepared for a conference in New York, she stated, “We are in this for as long as it takes to get inflation down,” adding that she recognized this would have a significant effect on families.
On September 21, the Fed will hold its following policy meeting, with a third consecutive forecasted 75-basis-point hike.
Since many equity traders thought the market had dropped too far too quickly, they largely followed their US counterparts in starting to buy again.
Tokyo led the gains thanks to information indicating that the Japanese economy did better than previously estimated in the second quarter, while Sydney also benefited from the possibility of a reduction in the rate at which Australian interest rates are raised.
Seoul, Singapore, Wellington, Taipei, Manila, Mumbai, Bangkok, and Jakarta all saw increases as well, although Hong Kong and Shanghai defied the general trend.
Frankfurt, London, and Paris all rose simultaneously.
Craig Erlam of OANDA said: “Given the economic backdrop, this could be nothing more than a dead-cat bounce. Despite this, the tone on trading floors remains depressing. Of course, if the US releases a positive inflation data, there might be more opportunity the following week.
Concerns over the world’s second-largest economy increased with the news that China had prolonged a lockdown in the megacity of Chengdu, as officials steadfastly adhere to their growth-stifling zero-Covid agenda.
As traders worry about the effect on demand, the shutdowns in China, which have affected tens of millions across the country, were boosting big oil sales.
Both of the major contracts for the commodity were down about $50 from their high seen in the immediate wake of Russia’s invasion of Ukraine. The commodity was already under pressure due to wagers on a recession brought on by increases in bank rates. At this point, they are at eight-month lows.
Additionally, despite Russian President Vladimir Putin’s threats to shut off energy to Europe if it enacted price limit penalties, Brent and WTI only slightly recovered from Wednesday’s more than 5% decline on Thursday.
“Some bargain-hunting buying is to be expected after a dive like” Wednesdays, said Vandana Hari at Vanda Insights.