Dollar falters as US yields retreat on recession risks

U.S. dollar banknotes are displayed in this illustration taken February 14, 2022. REUTERS/Dado Ruvic

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TOKYO, June 29 (Reuters) – The dollar depreciated against most of its major peers on Wednesday as falling U.S. yields tarnished some of the currency’s luster as investors feared the risk of a recession due to aggressive rate hikes by the Federal Reserve.

The dollar index, which measures the greenback against six peers, fell 0.08% to 104.39, reversing part of its 0.53% rally overnight, spurred mainly by weakness of the euro.

10-year Treasury yields fell more than a basis point in Tokyo, trading at around 3.17%, as Asian stocks trailed Wall Street lower. US stocks fell after a sharp drop in US consumer confidence stoked concerns of a slowdown as the Fed rushes to tame inflation.

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The euro rose 0.11% to $1.05315 after falling to $1.05025 on Tuesday after European Central Bank (ECB) chief Christine Lagarde offered no new outlook on the trajectory of European interest rates at the ECB’s annual forum. Read more

The ECB is expected to follow its global peers by raising interest rates in July for the first time in a decade to try to rein in soaring inflation, although economists are divided on the extent of any increase.

Lagarde and Fed Chairman Jerome Powell will speak on a panel at the forum later Wednesday.

“Recession risk will periodically reduce DXY (but) the broader medium-term uptrend will likely persist for some time yet,” Westpac strategists wrote in a client note, referring to the dollar index, which they see sticking to a 101-105 range for now.

They added, “…DXY is unlikely to top until we get closer to the end of the Fed’s frontal tightening cycle.”

The dollar slipped 0.08% to 136.04 yen, while the pound rose 0.16% to $1.2204.

Despite the decline in equities, the risk-sensitive Australian and New Zealand dollars rebounded slightly from Tuesday’s declines against the greenback, with the Aussie up 0.07% and the New Zealand dollar up 0.07%. 0.18%.

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Reporting by Kevin Buckland; Editing by Bradley Perrett

Our standards: The Thomson Reuters Trust Principles.

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