Slowdown fears support dollar, Aussie slumps to two-year low

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LONDON – Growing gloom over the outlook for the global economy lifted the safe-haven dollar on Friday and put pressure on risk-sensitive currencies, with the Australian dollar falling to its lowest level in two years.

Creeping inflation and a rush by central banks to raise rates and stem the flow of cheap money fueled market sell-offs and increased assets seen as safer bets.

New data on Friday showed eurozone inflation hit a new high in June, while separate statistics showed manufacturing output in the bloc fell for the first time in two years.

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The dollar index – which tracks the greenback against six peers – is on course for a weekly gain of almost 1% and was last up a quarter of a percent on the day at 105.020. .

« It’s a risky start to the second half of the year with equities and commodities falling, so the dollar is stronger pretty much everywhere, » said Kenneth Broux, FX strategist at Societe Generale in London. « The Fed is committed to controlling inflation, but can it make a soft landing? »

The US Federal Reserve has raised rates by 150 basis points since March, half of them last month in the biggest central bank hike since 1994. The market is betting on another of the same magnitude at the end of this month .

The odds were extremely low that the United States would slip into recession without dragging the rest of the world down with it, RBC Capital Markets strategists said in a note.

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The most risk-sensitive currencies fell across the board. The Australian dollar and New Zealand dollar both fell more than 1% on the day, with the Aussie dropping as much as 1.6% to $0.67905, its lowest since June 2020.

The Reserve Bank of Australia decides its policy on Thursday and the markets expect a hike of half a point in its key rate. But that didn’t help the Aussie much, which instead followed lower commodity prices as the global economic outlook deteriorated.

The pound fell 0.8% to $1.20770, a day after official data showed a record low in Britain’s current account deficit at the start of 2022.

The euro slipped as much as 0.5% to $1.04330. It was last down 0.3% at $1.04545.

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.

The Japanese yen gained as much as 0.75% on the day, moving away from a mid-week low of 137.00 – its weakest in 24 years. It was last up a quarter percent at 135.415 yen to the dollar.

In cryptocurrencies, Bitcoin resumed its slide, slipping 2% to trade just above $19,000.

(Reporting by Iain Withers, additional reporting by Saikat Chatterjee in London and Kevin Buckland in Tokyo; Editing by Alex Richardson)