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Dollar, yields gain after Powell comments, Bank of England rate hike


By Caroline Valetkevitch

NEW YORK (Reuters) – The U.S. dollar and Treasury yields climbed on Thursday as Federal Reserve Chair Jerome Powell suggested more U.S. interest rate hikes may be needed to curb inflation and the Bank of England delivered a bigger-than-expected rate hike.

A global stock index was little changed.

The Swiss National Bank (SNB) and Norges Bank also hiked their benchmark rates, underscoring central bank worries about global inflation while fueling concern about the impact of rate hikes on demand.

The BofE announced a half-point rate hike to 5%. Though the size of the hike surprised markets, expectations for BoE rate tightening surged in recent days.

Before Thursday’s decision, investors expected the BoE’s Bank Rate to peak at 6% by the end of the year. By contrast, economists polled by Reuters last week saw a 5% peak.

Powell, in his second day of testimony to lawmakers, suggested again the U.S. central bank has not reached the end of its tightening cycle.

In addition, Fed Governor Michelle Bowman, at an event in Cleveland, said “additional policy rate increases” will be needed to control inflation.

“Investors need to recognize the reality that central banks around the world are going to continue to fight inflation aggressively,” said Oliver Pursche, senior vice president and adviser for Wealthspire Advisors in Westport, Connecticut.

Last week, the Fed held its benchmark interest rate steady at between 5% and 5.25%, but most policymakers see at least two more quarter-point rate increases by the end of this year.

On Wednesday, Powell said in remarks to lawmakers in Washington that the outlook for two more 25-basis-point rate increases are “a pretty good guess” of where the central bank is heading if the economy continues in its current direction.

The dollar index, which measures the currency against six rivals, rose 0.4% to 102.40. Against the yen, the dollar was up 0.8% at 142.96 yen.

U.S. Treasury yields also rose, in line with those on UK bonds, as investors focused on the hawkish comments from Powell and the BoE’s hike.

Benchmark 10-year notes were up 7.2 basis points to 3.795%, from 3.723% late on Wednesday.

On Wall Street, stocks were mostly higher, with consumer discretionary and technology shares among the day’s biggest gainers.

The Dow Jones Industrial Average rose 10.58 points, or 0.03%, to 33,962.1, the S&P 500 gained 11.56 points, or 0.26%, to 4,377.25, and the Nasdaq Composite added 94.96 points, or 0.7%, to 13,597.16.

The pan-European STOXX 600 index lost 0.51% and MSCI’s gauge of stocks across the globe shed 0.02%.

In commodities, Chicago Board of Trade corn and soybean futures posted sharp declines after profit-taking, while oil futures fell amid worries over fuel demand.

U.S. crude fell 4.16% to settle at $69.51 a barrel, while Brent settled at $74.14, down 3.86% on the day.

(Reporting by Caroline Valetkevitch; additional reporting by Amanda Cooper and Marc Jones in London, and Ankur Banerjee in Singapore; Editing by Emelia Sithole-Matarise, Hugh Lawson, David Evans and Leslie Adler)

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