Stocks gain and dollar falls as investors assess policy outlook

Global equities rose on Friday as the euro and pound rose against a weaker dollar as investors gauged how much major central banks would tighten monetary policy to curb inflation.

A FTSE gauge of global stocks added 1.3%, with Europe’s regional Stoxx 600 gauge rising 1.5% and Hong Kong’s Hang Seng jumping 2.7%, snapping six days of losses. The FTSE 100 rose 1.3%.

On Wall Street, the S&P 500 climbed 0.7% and the tech-heavy Nasdaq Composite rose 1.1%. “This appears to be a global rally in risk amid lower rates and a weaker dollar,” JPMorgan analysts said. “The market remains focused on next week [consumer price index] print,” they added.

U.S. inflation data is due out on Tuesday, with economists polled by Reuters expecting a reading of 8.1% year-on-year for August, down from 8.5% in July.

Friday’s measures came a day after the European Central Bank raised interest rates by 0.75 percentage point to 0.75%, after raising borrowing costs in July for the first time in addition a decade from half a percentage point to zero. Britain’s new government also announced an estimated £150 billion package on Thursday to protect Britain from soaring energy prices.

On the currency side, the euro rebounded 0.5% to trade just above parity with the dollar, paring a larger rally earlier in the day. The common currency has fallen more than 11% this year as economic uncertainty and inflationary pressures – stoked by Russia’s invasion of Ukraine and squeezing gas supplies – pushed people towards perceived safety of the dollar.

The pound also gained 0.6% to $1.158, after slipping earlier this week to its lowest level since 1985, according to Bloomberg data. The Japanese yen rose 1.8% to ¥141.49, after hitting ¥144.98 on Wednesday — its weakest level against the dollar in 24 years.

Those gains were compared to a weaker greenback, which lost 0.6% on Friday against a basket of six peers.

US Federal Reserve Chairman Jay Powell on Thursday reiterated the hawkish message that the central bank should “act outright” on inflation and “keep going until the job is done”. Markets are pricing in a likely 0.75 percentage point hike in interest rates for the world’s largest economy when the central bank announces its next monetary policy decision in late September, which would mark the third consecutive hike of such a pace. magnitude.

Meanwhile, hawkish rhetoric from the ECB this week has led some analysts to expect another sharp rise at its October meeting, with Deutsche Bank pricing in another three-quarter point hike.

German bonds sold off sharply after the ECB’s decision and press conference on Thursday, with the two-year Bund yield hitting its highest level since 2011 as its price fell. Activity was more stable on Friday, with the same slipping yield of 0.01 percentage point to 1.32% and the yield on the 10-year Bund, considered an indicator of borrowing costs in the euro zone, rising by 0.01 percentage point to 1.71%.

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