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Dollar, yields rise after Powell comments, Bank of England rate hike

June 22, 2023By Reuters

NEW YORK, June 22 (Reuters) – The US dollar and Treasury yields climbed on Thursday as Federal Reserve Chair Jerome Powell suggested more US interest rate hikes may be needed to curb inflation and the Bank of England (BoE) delivered a bigger-than-expected rate hike.

A global stock index was little changed.

The Swiss National Bank and Norges Bank also hiked their benchmark rates, underscoring central bank worries about global inflation while fueling concern about the impact of rate hikes on demand.

The BoE announced a half-point rate hike to 5%. Though the size of the hike surprised markets, expectations for BoE rate tightening surged in recent days.

Before Thursday’s decision, investors expected the BoE’s Bank Rate to peak at 6% by the end of the year. By contrast, economists polled by Reuters last week saw a 5% peak.

Powell, in his second day of testimony to lawmakers, suggested again the US central bank has not reached the end of its tightening cycle.

In addition, Fed Governor Michelle Bowman, at an event in Cleveland, said “additional policy rate increases” will be needed to control inflation.

“Investors need to recognize the reality that central banks around the world are going to continue to fight inflation aggressively,” said Oliver Pursche, senior vice president and adviser for Wealthspire Advisors in Westport, Connecticut.

Last week, the Fed held its benchmark interest rate steady at between 5% and 5.25%, but most policymakers see at least two more quarter-point rate increases by the end of this year.

On Wednesday, Powell said in remarks to lawmakers in Washington that the outlook for two more 25-basis-point rate increases are “a pretty good guess” of where the central bank is heading if the economy continues in its current direction.

The dollar index, which measures the currency against six rivals, rose 0.4% to 102.41. Against the yen, the dollar was up 0.9% at 143.12 yen.

Both sterling and the Swiss franc were last weaker against the dollar in volatile trade.

US Treasury yields rose as investors focused on the hawkish comments from Powell.

In afternoon trading, the yield on 10-year Treasury notes was up 7.6 basis points at 3.798%.

On Wall Street, stocks ended mostly higher, with consumer discretionary and technology shares among the day’s biggest gainers.

The Dow Jones Industrial Average fell 4.81 points, or 0.01%, to 33,946.71, the S&P 500 gained 16.2 points, or 0.37%, to 4,381.89, and the Nasdaq Composite added 128.41 points, or 0.95%, to 13,630.61.

The pan-European STOXX 600 index lost 0.51% and MSCI’s gauge of stocks across the globe gained 0.05%.

In commodities, Chicago Board of Trade corn and soybean futures posted sharp declines after profit-taking, while oil futures fell amid worries over fuel demand.

US crude fell USD 3.02 to settle at USD 69.51 a barrel, while Brent dropped USD 2.98 to USD 74.14.

(Reporting by Caroline Valetkevitch; additional reporting by Amanda Cooper and Marc Jones in London, and Ankur Banerjee in Singapore; Editing by David Evans, Leslie Adler and Jamie Freed)


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