PESSIMISM about the global economic outlook boosted demand for the safe-haven US dollar on Friday (Jul 1) while the Australian dollar, a proxy for global growth, sank to a 2-year low. Rampant inflation and a rush by central banks to raise rates and stem the flow of cheap money has fuelled sell-offs across markets and lifted assets seen as safer bets. “When people get worried they still buy dollar assets,” said Joseph Trevisani, senior analyst at FXStreet.com in New York.

The dollar gained on Friday even as concerns about an economic downturn sent benchmark 10-year US Treasury yields to 1-month lows. The greenback is being swayed between concerns that the Federal Reserve will continue to hike rates aggressively to blunt soaring prices, and the likelihood that this will hurt the economy. Expectations for interest rate hikes in the US have fallen, with traders now pricing in a peak of 3.32 per cent in March, down from previous estimates of around 4 per cent before the Fed’s Jun 14-15 meeting. The Fed’s benchmark rate is currently 1.58 per cent.

The dollar index gained 0.36 per cent against a basket of currencies to 105.12. It is holding just below a 20-year high of 105.79 reached on Jun 15.

The euro fell 0.56 per cent to US$1.0424. The single currency reached a 5-year low of US$1.0349 on May 13. Eurozone inflation hit another record high in June, while manufacturing production in the bloc fell for the first time in 2 years. The European Central Bank is expected to raise interest rates this month for the first time in a decade, although economists are divided on the size of any hike.

Risk-sensitive currencies underperformed. The Australian dollar fell as low as 67.64 cents, the weakest since June 2020. “It’s a risk-off start to the second half of the year with equities and commodities down, so the dollar is stronger pretty much across the board,” said Kenneth Broux, an FX strategist at Societe Generale in London. The Reserve Bank of Australia decides policy on Thursday, and markets expect a half point hike to its key rate.

Sterling reached a 2-week low of US$1.1976 a day after official data showed a record shortfall in Britain’s current account deficit in early 2022. The dollar dipped 0.37 per cent against the Japanese yen to 135.26. The Japanese currency hit a 24-year low of 137.01 per dollar on Wednesday. REUTERS

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