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Dollar gains ground as risk appetite declines

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NEW YORK – The US dollar rose on Wednesday, pacing to break a three-session loss streak as worries over the outlook for global economic growth and rising inflation rocked sentiment a day after US presidential Federal Reserve, Jerome Powell, took a more aggressive tone.

Powell promised Tuesday that the U.S. central bank would raise interest rates as high as necessary, including interest rates above neutral, to curb a rise in inflation that he said threatened the bottom line of the economy.

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The neutral rate is the level at which economic activity is not simulated or constrained and is expected to be somewhere near 3.5% by mid-2023.

On Wednesday, the dollar benefited from safe haven demand as stocks sold off and government bond yields fell.

“Yesterday’s risk rally, unsurprisingly, appears to have been short-lived and has almost spiraled out of control in this morning’s trading,” said Michael Brown, head of market intelligence at Caxton in London.

“As a result, demand for port USD has risen again, in a sort of ‘flight to money’ with Treasuries failing to find bids despite shaky sentiment,” Brown added.

The US Dollar Currency Index, which tracks the greenback against six major currencies, rose 0.4% to 103.76, on pace to break its longest losing streak since mid-March.

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“Technically, it will please the bulls that the dollar index has managed to hold above its previous support of 103.20, which, combined with the continuing gloomy economic backdrop, should keep the USD solid for now,” said Caxton’s Brown.

The pound fell 1.1% against the dollar on Wednesday after data showed UK inflation soared to 9%, its highest level in 40 years.

As investors had a vague view of riskier currencies, the Australian dollar, viewed as a liquid proxy for risk appetite, fell 0.8%. Australian wage growth rose just a fraction in the quarter, prompting investors to reverse their bets on bigger rate hikes.

Cryptocurrency markets have been fairly calm after last week’s turmoil. Bitcoin fell about 4% and last traded at $29,094.59. Ether fell 6% to below USD 2,000.

(Reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis and Will Dunham)

This post Dollar gains ground as risk appetite declines

was original published at “https://financialpost.com/pmn/business-pmn/dollar-recovers-ground-as-risk-appetite-fades”

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