By Joice Alves and Alun John
LONDON, June 22 (Reuters) – The euro and sterling fell on Wednesday as investors turned to the safe-haven dollar amid an exit from riskier assets, which also saw a market rebound stock market run out of steam, and after data showed UK consumer price inflation. reached a new high in 40 years.
As investors grow nervous again over global growth prospects, the US dollar gained ground against most of its peers. The yen hit a new 24-year low as rising US and European bond yields contrasted with low Japanese interest rates.
The pound fell 0.8% to $1.2198, touching its lowest level in almost a week, after British consumer prices hit 9.1% last month, the highest rate high in the Group of Seven countries, underscoring the seriousness of the cost of living crisis. .
Mike Bell, global market strategist at JP Morgan Asset Management, said with real wages in Britain already squeezed by rising prices, the further increase in borrowing costs “could feel like rubbing salt in the wound” and increases the risk of recession. However, he expected the Bank of England to continue raising rates in an effort to fight inflation until clear signs emerged that the labor market was weakening.
“The Bank of England (is) stuck between a rock and a hard place,” he said.
Wednesday’s other main event is the start of US Federal Reserve Chairman Jerome Powell’s two-day testimony before Congress, with investors looking for further clues as to whether another 75 basis point rate hike is being considered at the July Fed meeting.
The dollar index rose 0.33% to 104.8. The euro fell 0.4% to $1.0497.
The yen was last down 0.3% at 136.3 to the dollar, after hitting 136.71 in early trading, its lowest since October 1998.
Analysts see no immediate end to a selloff that has seen the yen weaken 18% this year from 115.08 at the end of 2021.
The currency weakened due to rising energy prices putting pressure on Japan’s current account and due to the ever-widening spread between Japanese government bond yields and bond yields. of the US Treasury.
The Bank of Japan last week kept interest rates ultra-low and pledged to defend its yield curve control (YCC) policy, which effectively caps the yield on 10-year Japanese government bonds. at 0.25%.
“The dollar/yen continues to trade on Treasury yields, which were flat but with the 10-year remaining above the 3.20% level while the Bank of Japan did a lot to defend YCC,” said Redmond Wong, market strategist at Saxo Hong Kong Markets.
Commodity currencies The Norwegian krone fell 1.3% against the dollar to 9.9740, and the Australian dollar fell 1.1% to $0.6898 as weak commodity prices also weighed.
(Reporting by Joice Alves and Alun John; Editing by Muralikumar Anantharaman)