FOREX-After Wednesday’s rally, safe-haven dollar is weakening, but risk sentiment remains fragile

Safe-haven currencies, such as the dollar, slipped on Thursday, taking a breather after large gains the previous day as Wall Street equities fell amid growing concerns that aggressive tightening by the Federal Reserve and other global central banks will limit growth. The dollar index, which measures the value of the dollar against six major currencies, fell 0.05 percent to 103.74, following a 0.55 percent gain overnight that snapped a three-day losing streak. The yen fell, with the dollar rising 0.21 percent to 128.495 yen after falling 0.86 percent on Wednesday. Following a 0.6 percent drop, the Swiss franc strengthened further, with the dollar shedding 0.13 percent to 0.9869 franc. After falling as high as 3.015 percent in the previous session, the benchmark 10-year US Treasury yield stayed flat around 2.89 percent in Tokyo trading.

Powell’s stance “makes it hard to achieve a ‘soft landing’ for the U.S. economy given the long lags between changes in monetary policy and changes in inflation,” Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney, wrote in a client note. “The darkening outlook for the U.S. economy supports the USD and safe-haven currencies.” The euro recovered some ground, adding 0.25% to $1.0489 after Wednesday’s 0.84% slump.

Despite the pause in the safe haven rally, sentiment remained fragile with Asian stocks sliding and U.S. futures pointing lower, a day after a 4% drop for the S&P 500 and a 5% plunge for the Nasdaq. Poor U.S. housing data on Wednesday added to slowdown concerns, and Fed Chair Jerome Powell had ratcheted up the hawkish rhetoric the previous day by saying the U.S. monetary authority would push interest rates as high as needed to stem a surge in inflation that he said threatened the foundation of the economy.

The Aussie rose 0.14% to $0.6965 – shaking off a smaller-than-forecast increase in jobs for last month – but the currency had slumped 1.05% on Wednesday. Sterling remained under pressure, trading little changed at $1.2343 after dropping 1.2% overnight as a surge in U.K. inflation to a 40-year record fostered worries for a sharp economic slowdown.

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• FOREX-After Wednesday’s rally, safe-haven dollar is weakening, but risk sentiment remains fragile
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