Dollar strengthens on central bank caution, spurring risk aversion.
The U.S. dollar gained ground during early European trade due to more assertive monetary tightening measures implemented by various central banks, including the Bank of England. This move prompted a rise in risk aversion among investors. The Dollar Index, which tracks the performance of the greenback against a basket of six other major currencies, traded 0.3% higher at 102.280, hovering just above its recent one-month low. The British pound faced difficulties following a substantial rate hike by the Bank of England, causing some investors to seek the safety of the U.S. dollar. This was exacerbated by concerns that the Bank of England's aggressive actions might lead to a slowdown in the UK economy.
Federal Reserve Chair Jerome Powell reiterated his stance on potential rate hikes in the United States, signaling the likelihood of at least two more increases this year to combat high inflation. Powell emphasized the importance of carefully monitoring incoming economic data before making further decisions. In addition to the Bank of England, the Swiss National Bank and Norway's central bank also raised interest rates, implying the possibility of future tightening measures.
The euro slipped in anticipation of purchasing managers' index surveys in the region, with expectations of a softening in economic activity. Positive survey results, indicating potential future rate hikes, could impact the euro negatively. Meanwhile, the risk-sensitive Australian dollar experienced a decline, while the USD/JPY pair saw an increase despite elevated core consumer price inflation in Japan.