FOREX-Dollar eases as growth fears push yields lower

BY Reuters | ECONOMIC | 06/22/22 03:11 PM EDT
    (New throughout, updates prices, market activity and comments)
    By Herbert Lash
    NEW YORK, June 22 (Reuters) - The dollar fell on Wednesday
as U.S. Treasury yields slid on fears the U.S. economy could
slide into recession after Federal Reserve Chair Jerome Powell
said higher rates are painful but are the means the U.S. central
bank has to slow inflation.
    The Fed is not trying to engineer a recession to heel
inflation but is fully committed to bringing prices under
control even if doing so risks an economic downturn, Powell said
at a hearing of the U.S. Senate Banking Committee.
    "Higher interest rates are painful, but it's the tool we
have to bring down inflation," Powell said.
    Investors worry that aggressive interest rate hikes by major
central banks to tame inflation risk causing a sharp global
slowdown or recession. Higher rates have strengthened the dollar
but the euro has gained in recent days on the European Central
Bank's plans to raise rates to contain inflation.
    "The Federal Reserve's resolve is setting the stage for
bigger moves by other central banks and that's leading the euro
higher, for example, and the Canadian dollar higher," said Kathy
Lien, managing director at BK Asset Management in New York.
    "The sell-off in U.S. Treasuries tells us that the market
was not surprised by anything that Powell said. I would
attribute the dollar weakness more to the greenback's moving in
lock step with Treasury yields," Lien said.
    British consumer price inflation hit a 40-year high at 9.1%
in May, while annual Canadian inflation surged to 7.7% last
month to the highest rate since January 1983. The data is the
latest to show consumer prices running hotter than expected.

    Sterling initially lost almost 1% as it fell to a near
one-week low of $1.2162, but it has pared most losses. The
Canadian dollar rose against the U.S. currency, moving further
away from the 1.30 level it breeched last Friday and on Monday.
    "Powell is giving the greenlight for further dollar strength
against the Japanese yen," Lien said.
    Market players are torn between recognizing that central
banks are tightening financial conditions more aggressively than
expected a month or two ago and concern about what the economic
fallout is going to be, said Marc Chandler, chief market
strategist at Bannockburn Global Forex.
    "Sentiment is fickle partly because we're unsure when
inflation will peak," Chandler said. "Everything is being driven
by inflation, inflation expectations and central bank policy."
    The dollar index fell 0.31%, with the euro up
0.47% at $1.0574. The yen strengthened 0.36% to 136.14 per
dollar, while sterling was down 0.04% at $1.2267.
    The safe-haven dollar has been gaining ground on most peers.
The yen hit a fresh 24-year low as rising U.S. and European bond
yields contrasted with low Japanese interest rates.
    "Recession fears are growing as central bankers slow demand
to curb inflation. Pro-cyclical currencies are on the back foot
and the dollar remains very much in demand," said Chris Turner,
global head of markets at ING.
    Analysts see no immediate end to a sell-off that has
weakened the yen 18% this year from 115.08 at the end of 2021.

        Currency bid prices at 2:08 PM (1808 GMT)
 Description      RIC         Last           U.S. Close  Pct Change     YTD Pct       High Bid    Low Bid
                                              Previous                   Change
                                              Session
 Dollar index                 104.0600       104.4300    -0.34%         8.778%        +104.9500   +103.8500
 Euro/Dollar                  $1.0580        $1.0535     +0.41%         -6.95%        +$1.0606    +$1.0470
 Dollar/Yen                   136.2400       136.6900    -0.32%         +18.36%       +136.7100   +135.6800
 Euro/Yen                     144.15         143.94      +0.15%         +10.61%       +144.1600   +142.6800
 Dollar/Swiss                 0.9604         0.9666      -0.61%         +5.32%        +0.9689     +0.9581
 Sterling/Dollar              $1.2281        $1.2279     +0.01%         -9.20%        +$1.2314    +$1.2163
 Dollar/Canadian              1.2919         1.2917      +0.02%         +2.18%        +1.2996     +1.2915
 Aussie/Dollar                $0.6943        $0.6974     -0.44%         -4.48%        +$0.6972    +$0.6882
 Euro/Swiss                   1.0162         1.0175      -0.13%         -2.00%        +1.0188     +1.0133
 Euro/Sterling                0.8613         0.8582      +0.36%         +2.54%        +0.8625     +0.8575
 NZ                           $0.6296        $0.6330     -0.57%         -8.05%        +$0.6331    +$0.6244
 Dollar/Dollar
 Dollar/Norway                9.8820         9.8435      +0.40%         +12.19%       +9.9970     +9.8800
 Euro/Norway                  10.4573        10.3647     +0.89%         +4.44%        +10.5210    +10.3648
 Dollar/Sweden                10.0688        10.1004     +0.17%         +11.66%       +10.1927    +10.0463
 Euro/Sweden                  10.6552        10.6371     +0.17%         +4.12%        +10.6915    +10.6400


 (Reporting by Herbert Lash, additional reporting by Joice Alves
and Alun John;
Editing by Muralikumar Anantharaman, Mark Potter, Emelia
Sithole-Matarise and Richard Chang)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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