Fears of a recession grow as the dollar gets stronger and the yuan breaks through a key level.
In early European trading on Friday, the U.S. dollar got stronger, while the Chinese yuan broke through a key level, as worries about rising interest rates and a possible recession made people less willing to take risks.
At 3:10 ET (07:10 GMT), the Dollar Index, which compares the dollar to a basket of six other currencies, went up 0.1% to 109.545, which is not too far from its 20-year high of 110.79.
Late Thursday, both the World Bank and the International Monetary Fund warned of an upcoming slowdown in the global economy. Indermit Gill, the chief economist for the World Bank, said he was worried about “generalised stagflation,” a time when growth is slow and inflation is high.
As many central banks aggressively tighten monetary policy to fight inflation at record highs, fears of a global recession grow.
Related: In Interbank, the US dollar keeps getting stronger against the rupee.
Most people think that the Federal Reserve will raise rates by 75 basis points next week, and that the Bank of England will likely raise rates for the seventh meeting in a row.
This pessimistic view of the economy has hurt the currencies that are seen as more risky, with the dollar being the main winner.
For the first time in more than two years, the Chinese yuan traded above the critical level of 7 per dollar. USD/CNY went up 0.3% to 7.0121, despite data showing that China’s economy is holding up surprisingly well. Factory output grew faster than expected, and retail sales grew at the fastest rate in six months.
EUR/USD fell 0.1% to 0.9990 and was trading below parity before the August CPI data for the Eurozone was released. This should show that inflation stayed strong in the bloc, going up 0.5% from the previous month and 9.1% from the previous year. This is because the region is struggling to deal with rising energy prices.
GBP/USD dropped 0.3% to 1.1424 after U.K. retail sales dropped by 1.6% on the month and 5.4% on the year in August. This was the biggest drop of the year so far, and it was caused more by the cost-of-living crisis than a small drop in fuel prices.
USD/JPY went up 0.1% to 143.59, with the yen struggling as the two-year U.S. Treasury yield hit a new high of 3.901% on Friday, the highest since 2007.
The Bank of Japan will also meet this week, but it is very unlikely that they will raise rates. This means that the growing interest rate differences will hurt the Japanese currency more.
Related: The rupee keeps getting weaker against the dollar in the interbank market.
AUD/USD went up 0.1% to 0.6706. Earlier in the session, it hit a two-month low of 0.6685.
Also, the USD/RUB exchange rate went up by 0.4% to 60.0288 before the latest meeting of the Russian Central Bank. Most economists polled by Bloomberg think that the interest rate will go down by 0.5 percentage points, to 7.5%. This would be the smallest cut in interest rates since the Central Bank started making money easier to spend after the invasion of Ukraine.
