Dollar boosted by safety bid on rising recession fears



* Graphic: World FX rates Link

By Karen Brettell

NEW YORK, July 1 (Reuters) - Pessimism about the outlook for the global economy boosted demand for the safe haven U.S. dollar on Friday while the Australian dollar, a proxy for global growth, tumbled to a two-year low.

Rampant inflation and a rush by central banks to raise rates and stem the flow of cheap money has fueled sell-offs across markets and lifted assets seen as safer bets.

“When people get worried they still buy dollar assets,” said Joseph Trevisani, senior analyst at FXStreet.com in New York.

The dollar gained on Friday even as concerns about an economic downturn sent benchmark 10-year U.S. Treasury yields to one-month lows.

US10YT=RR

The greenback is being swayed between concerns that the Federal Reserve will continue to hike rates aggressively in an effort to blunt soaring price pressures, and the likelihood that this tightening will hurt the economy.

“You have weakening rates against the dollar competing against fear of a global recession and enormous amounts of debt and all sorts of other problems,” Trevisani said.

Expectations on how high the U.S. central bank will be able to raise rates have fallen, with traders now pricing in a peak rate of 3.33% in March, down from previous expectations of around 4% before the Fed’s June meeting. The Fed’s benchmark rate is currently 1.58%. FEDWATCH USONFFE=

The dollar index gained 0.63% against a basket of currencies to 105.39. It is holding just below a 20-year high of 105.79 reached on June 15.

The euro fell 0.78% to $1.0400. The single currency reached a five-year low of $1.0349 on May 13. =USD EUR=EBS

Data on Friday showed that euro zone inflation hit another record high in June, while manufacturing production in the bloc fell for the first time in two years.

The European Central Bank is expected to raise interest rates this month for the first time in a decade, although economists are divided on the size of any hike.

Risk-sensitive currencies underperformed. The Australian dollar fell as low as $0.6764, the weakest since June 2020. AUD=D3

"It's a risk-off start to the second half of the year with equities and commodities down, so the dollar is stronger pretty much across the board," said Kenneth Broux, an FX strategist at Societe Generale in London.

The Reserve Bank of Australia decides policy on Thursday, and markets expect a half point hike to its key rate.

Sterling reached a two-week low of $1.20 a day after official data showed a record shortfall in Britain's current account deficit in early 2022. GBP=D3

The dollar dipped 0.35% against the Japanese yen to 135.31. The Japanese currency hit a 24-year low of 137.01 per dollar on Wednesday. JPY=EBS

In cryptocurrencies, bitcoin resumed its slide lower, slipping 2.88% to trade just above $19,351. BTC=BTSP

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Currency bid prices at 10:01AM (1401 GMT) Description

RIC

Last

U.S. Close Pct Change

YTD Pct

High Bid

Low Bid

Previous

Change

Session

Dollar index

=USD

105.3900

104.7500

+0.63%

10.168%

+105.5300 +104.7500 Euro/Dollar

EUR=EBS

$1.0400

$1.0483

-0.78%

-8.51%

+$1.0486

+$1.0393 Dollar/Yen

JPY=EBS

135.3100

135.7700

-0.35%

+17.53%

+135.9800 +134.7500 Euro/Yen

EURJPY=

140.73

142.26

-1.08%

+7.99%

+142.4300 +140.6900 Dollar/Swiss

CHF=EBS

0.9614

0.9549

+0.69%

+5.40%

+0.9630

+0.9548 Sterling/Dollar GBP=D3

$1.2012

$1.2180

-1.38%

-11.18%

+$1.2173

+$1.1996 Dollar/Canadian CAD=D3

1.2933

1.2873

+0.50%

+2.33%

+1.2959

+1.2867 Aussie/Dollar

AUD=D3

$0.6793

$0.6903

-1.58%

-6.53%

+$0.6903

+$0.6764 Euro/Swiss

EURCHF=

1.0000

1.0010

-0.10%

-3.56%

+1.0042

+0.9983 Euro/Sterling

EURGBP=

0.8656

0.8607

+0.57%

+3.05%

+0.8678

+0.8606 NZ

NZD=D3

$0.6177

$0.6247

-1.12%

-9.75%

+$0.6246

+$0.6150 Dollar/Dollar

Dollar/Norway

NOK=D3

9.9445

9.8415

+1.13%

+12.97%

+9.9710

+9.8430 Euro/Norway

EURNOK=

10.3450

10.3193

+0.25%

+3.32%

+10.3993

+10.3077 Dollar/Sweden

SEK=

10.3430

10.2189

+0.37%

+14.69%

+10.3652

+10.2121 Euro/Sweden

EURSEK=

10.7570

10.7174

+0.37%

+5.11%

+10.7817

+10.7173
Additional reporting by Iain Withers in London; Editing by Alison Williams

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