Global overview
The U.S. dollar bounced back from mid-May lows as rising borrowing rates around the world weighed on sentiment and spurred a flight to safety. The euro and sterling fell to one-week lows, while the Canadian dollar erased the bulk of its weekly gains. The Bank of England Thursday caught about half the market off guard with its aggressive half-point hike to 5%. Markets worry that the barrage of central bank rate hikes could persist for longer with inflation continuing to run too hot around the world. Higher rates, while bullish for a currency’s appeal, come with downside risks to growth should central banks go overboard in tightening policy that it tips economies into recession. Meanwhile, surprising weak data Friday from Europe did little to allay worries about moderating growth. Surveys of business growth across the bloc unexpectedly decelerated in June. The greenback’s revival from six-week lows also stems from remarks this week from Fed Chair Jerome Powell who reiterated that the central bank isn’t done raising rates with inflation still too high.
Euro poised for worst day in months
The euro fell to one-week lows and was on track for a losing week as worries about global growth whet demand for safer plays like the U.S. dollar, the world’s most liquid currency. The euro also was dinged by downbeat surveys from the euro zone and Germany, the bloc’s largest economy, that showed surprise moderation in business growth. The data offered evidence of the ECB’s forceful interest rate hikes to cool both inflation and the economy bearing fruit. EUR/USD’s nearly 1% tumble Friday had it on track for its worst day since March.
Sterling bruised by UK growth fears
Markets are focusing on the downside risk to UK growth from the Bank of England’s bold rate hike this week to 5% from 4.50%. High and rising UK lending rates have been a boon for sterling this year, with GBP/USD up around 5% year-to-date. But Britain’s yet to substantially improve inflation problem means that London may have to jack borrowing rates up to – and perhaps above – 6%. While higher rates could indeed slay inflation, they also threaten to push the economy into a deep downturn, a worry that for now has put a lid on sterling appreciation.
Loonie’s winning streak flickers
The specter of rising global interest rates dealing a blow to the world economy rattled currencies with the closest ties to global growth like Canada’s commodity-influenced dollar. If USD/CAD closes the week above 1.32 it will halt a three-week slide. The loonie for weeks has been supported by growing signs of a resilient Canadian economy that led Ottawa this month to restart interest rate hikes. The Bank of Canada’s key policy rate stands at 4.75%, the highest in 22 years, with markets betting on a hike to 5% next month.
Dollar back near summit of weekly range
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: Jun 19-23
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
