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U.S. dollar gains sharply across the board as recession fears mount

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NEW YORK —

The U.S. dollar soared on Thursday, led by strong gains against the yen, sterling, and commodity

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currencies, as investors fretted about the risk of recession with the Federal Reserve likely to raise

interest rates well into next year.

The greenback’s allure was magnified, amid worsening risk appetite as stocks fell.

Like the Fed, the European Central Bank raised interest rates for the fourth time in a row, although by

less than at its last two meetings, pledged further hikes and laid out plans to drain cash from the

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financial system as part of its fight against runaway inflation.

ECB President Christine Lagarde, in her press briefing, said upside inflation risks remain, which

necessitates more tightening.

The

Bank of England

also raised its key interest rate by a further half-percentage point on Thursday and indicated more

hikes were likely. Investors though bet that the BoE might be getting close to the end of its increases in

borrowing costs.

“Both the Fed and ECB delivering more hawkish rate steers are compounding recession fears,” said Joe

Manimbo, senior market analyst at Convera in Washington.

“The dollar’s boost from the Fed stems from it not being done raising rates and Chair (Jerome)

Powell setting a high bar for rate cuts.”

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The Fed

projected at least an additional 75 bps of increases in borrowing costs by the end of 2023. Its

projection of the target federal funds rate rising to 5.1% in 2023 is slightly higher than investors

expected.

Powell was also particularly

hawkish

in his comments, noting that ongoing rate hikes are appropriate to get sufficiently restrictive.

J.P. Morgan Asset Management, in a research note, has increased the odds of recession to 60% from

its initial forecast of 50%.

“The Fed is raising rates at the fastest pace since 1980, the rest of the world is following its

lead, quantitative tightening is in its early stages, and inflation remains painfully high,” wrote Bob

Michele, chief investment officer, at J.P. Morgan.

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“It seems very aspirational to assume all this can end in a soft landing.”

In afternoon trading, the dollar rose to two-week highs against the yen, and last traded up 1.6% at

137.665.

The euro earlier hit $1.0737, the highest since June 9, after the ECB decision, before falling

back to $1.0629, down 0.5% on the day. The dollar index, a gauge of the greenback’s value against a basket

of currencies, rose 0.9% at 104.53

The greenback briefly pared gains after data on Thursday showed that U.S. retail sales fell more than

expected in November, while the labor market remains tight, with the number of Americans filing for

unemployment benefits declining last week.

Sterling also fell sharply as investors believe the BOE is nearing the end of its rate hikes. It was

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last down nearly 2% at $1.2183.

The Norwegian krone dropped as well versus the dollar after Norway’s central bank raised its benchmark

interest rate by 25 basis points to a 13-year high of 2.75% on Thursday, as expected by economists, and said

it will “most likely” hike again in the first quarter of 2023.

The dollar surged 1.5% against the Norwegian currency to 9.866.

The Swiss franc also fell after Swiss National Bank Chairman Thomas Jordan said it was too

early to “sound the all-clear” on high inflation after the central bank hiked interest rates again on

Thursday and hinted further increases were still possible.

The SNB raised its policy interest rate by 50 basis points to 1% – the central bank’s third hike this

year as it stepped up its campaign to dampen the rise in prices.

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The dollar was last up 0.4% versus the franc at 0.9285.

The Australian and New Zealand dollars were down sharply against the greenback. The Aussie fell 2.3%

to US$0.6702, while the New Zealand dollar slid 1.8% to US$0.6345.

========================================================

Currency bid prices at 4:01PM (2101 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 104.5700 103.6600 +0.89% 9.311% +104.8800 +103.5300

Euro/Dollar $1.0625 $1.0683 -0.54% -6.54% +$1.0737 +$1.0593

Dollar/Yen 137.6500 135.4800 +1.60% +19.57% +138.1700 +135.2400

Euro/Yen 146.27 144.68 +1.10% +12.24% +146.7200 +144.3100

Dollar/Swiss 0.9284 0.9244 +0.44% +1.79% +0.9316 +0.9232

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Sterling/Dollar $1.2178 $1.2428 -2.01% -9.95% +$1.2426 +$1.2158

Dollar/Canadian 1.3655 1.3543 +0.83% +8.00% +1.3674 +1.3541

Aussie/Dollar $0.6703 $0.6864 -2.35% -7.79% +$0.6870 +$0.6677

Euro/Swiss 0.9863 0.9874 -0.11% -4.88% +0.9916 +0.9840

Euro/Sterling 0.8722 0.8594 +1.49% +3.83% +0.8728 +0.8592

NZ $0.6346 $0.6460 -1.79% -7.31% +$0.6463 +$0.6321

Dollar/Dollar

Dollar/Norway 9.8630 9.7280 +1.48% +12.06% +9.8970 +9.7465

Euro/Norway 10.4753 10.3710 +1.01% +4.67% +10.5011 +10.3783

Dollar/Sweden 10.3380 10.1531 +1.18% +14.64% +10.3880 +10.1599

Euro/Sweden 10.9801 10.8520 +1.18% +7.29% +11.0095 +10.8532

(Reporting by Karen Brettell and Gertrude Chavez-Dreyfuss in New York; Editing by Nick Zieminski, Jonathan

Oatis and Diane Craft)

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