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Investing.com – The US dollar rose in early European trade on Friday, as more aggressive monetary tightening by a series of central banks, including the Bank of England, sparked a risk-off bout.
At 02:00 ET (06:00 GMT), the dollar, which measures the greenback against a basket of six other currencies, was up 0.3% at 102.280, trading above its one-month low.
The British pound is struggling after a big rise for the Bank of England
It fell 0.3% to 1.2706, struggling after jumping briefly in the wake of Thursday’s 50 basis point interest rate hike to a near one-year high.
“The British pound initially jumped on a larger-than-expected interest rate hike, but then pulled back again – most likely on views that the Bank of England is ready to engineer a harder slowdown to bring inflation under control. One could argue that as a growth-sensitive currency this is all bad news for the pound, ING analysts said in a note.
While higher interest rates are usually supportive of currencies, the risk that they will lead to a recession in the UK has hit sterling and prompted some investors to seek safe-haven assets such as the US dollar.
Evidence of the economic slowdown came from UK data, released earlier on Friday, which showed sales fell 2.1% in May on an annual basis.
Powell points to an increase in prices again
The head of the Federal Reserve reiterated his view that the US could rise at least twice more this year to contain soaring inflation, as he completed his two-day testimony before Congress.
“We don’t want to do more than we have to do,” Powell said at a hearing before the Senate Banking Committee on Thursday. “The overwhelming majority of the (Federal Open Market) committee thinks there are more rate hikes, but we want to make them as fast as we can.” us to see the information received.”
In addition, they both raised interest rates by 25 basis points and 50 basis points respectively on Thursday, also indicating the possibility of further tightening.
Euro falls ahead of PMIs
It fell 0.3% to 1.0930 before the area polls were released.
A dip in activity is largely expected, but the strong numbers could also hit the euro as they point to higher rates ahead in a region that went into recession in the first quarter of the year.
Elsewhere, the Risk Sensitivity Index fell 0.9% to 0.6694, while it rose 0.2% to 143.37, although Japan jumped to a 42-year high during May, suggesting that core Japanese inflation remained hot.