Dollar pares safe-haven gains on road to weekly loss
The safe-haven dollar slipped on Friday, giving back some of the previous session’s strong gains, as traders continued to digest the implications of continued monetary tightening at the world’s biggest central banks.
The dollar index, which gauges the currency against six major peers, edged 0.12% lower to 104.38 in Asia.
That followed a 0.85% surge overnight, its biggest since late September, after European Central Bank President Christine Lagarde said there was more to do in the battle against inflation, stoking worries that tighter policy will trigger a recession.
A day earlier, Federal Reserve Chair Jerome Powell said policymakers expected U.S. rates to rise higher and stay elevated for longer.
“It has been a big night in markets, with the modestly ‘risk-off’ reaction to the Fed on Wednesday from what was seen as a slightly more hawkish than expected set of outcomes greatly exacerbated by the messaging out of the ECB’s meeting,” Ray Attrill, head of foreign-exchange strategy at National Australia Bank (OTC:NABZY), wrote in a note.
Asian stocks sink on recession fears, Nikkei slammed by weak data
Most Asian stock markets sank on Friday and were set for weekly declines as a slew of hawkish central bank signals brewed concerns over a potential recession, with Japan’s Nikkei lagging its peers as weak manufacturing activity data battered major industrial stocks.
Most regional bourses were also set for steep weekly losses this week, with technology-heavy indexes losing the most. The sector logged sharp declines this year amid rising interest rates, and is set for little relief in the near-term.
Japan’s Nikkei 225 index sank nearly 2% on Friday, with industrial stocks weighing the most after data showed the country’s manufacturing sector shrank more than expected in December. While overall business activity still expanded thanks to strength in the services sector, softening industrial production bodes poorly for the economy in the long-term.
Oil drops, but poised for biggest weekly gain since early Oct
Oil dipped on Friday as the market assessed the aftermath of interest rates hikes at central banks but was poised for the biggest weekly gains in 10 weeks amid supply disruption concerns and China’s demand recovery hopes.
Brent crude futures fell 14 cents, or 0.2%, to $81.07 per barrel by 0728 GMT. West Texas Intermediate futures slipped 22 cents, or 0.3%, to $75.89.
Both benchmarks fell 2% in the previous session as the dollar strengthened and central banks in Europe raised interest rates.
“The tighter monetary policy is already having an impact on industrial activity. The prospect of further tightening following hawkish comments from policy makers weighed on sentiment,” said analysts from ANZ Research in a note on Friday.
The U.S. Federal Reserve indicated it will raise interest rates further next year, even as the economy slips toward a possible recession.
On Thursday, the Bank of England and the European Central Bank raised interest rates to fight inflation.
But the oil benchmarks are on track for their biggest weekly gains since early October, with market sentiment buoyed by potential supply tightness after Canada’s TC Energy (NYSE:TRP) Corp shut its Keystone pipeline following a leak and by the prospect of demand increasing in 2023.
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