Dollar languishes amid falling US yields as recession fears rise

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TOKYO: The US dollar remained under pressure on Thursday as it looked set to extend declines against its major peers into a fourth day, hurt by Treasury yields wallowing near two-week lows in a amid growing fears of a recession.

The dollar index, which measures the currency against six major rivals, slipped 0.1% to 104.12, bringing its decline since Friday to 0.46%. It fell 1.56% from the two-decade high of 105.79 hit on June 15, when the Federal Reserve raised rates by 75 basis points – the biggest rise since 1994.

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Markets are increasingly concerned that the Fed’s commitment to quell runaway inflation could trigger a recession. Those concerns sent 10-year Treasury yields tumbling to near two-week lows.

Overnight, Fed Chairman Jerome Powell told Congress that the central bank was fully committed to bringing prices under control, even if it risked causing an economic slowdown. He said a recession was “definitely a possibility”, reflecting fears in financial markets that the Fed’s pace of tightening could dampen growth.

Economists polled by Reuters expect another 75 basis point hike for July, followed by a 50 basis point hike for September.

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“Powell’s semi-annual testimony picked up some steam on the USD, with his comments regarding elevated recession risk obviously outweighing his unconditional commitment to restoring price stability,” Westpac strategists wrote in a client note. .

“But with 75 basis points still on the table for July and Fed Funds expected to top 3% by year end, USD interest rate support should ultimately continue to strengthen.”

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Westpac sees the risk of a pullback in the dollar index to the 102 level in the near term, but recommends buying at these levels.

The dollar slipped 0.17% to 135.97 yen, falling from a 24-year high of 136.71 hit on Wednesday.

However, the US currency gained against the South Korean won, hitting 1,302.77 for the first time in 13 years and last trading down 0.19% at 1,300 won.

The euro was little changed at $1.05615, while the pound slid 0.2% to $0.8630.

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