America’s dollar got a brief boost this week after the leader of the Federal Reserve signalled a still open door to higher interest rates this year. But the dollar quickly squandered its Fed-driven boost after testimony from the Fed chair, Janet Yellen, shared markets’ concerns over global growth. Consequently, Fed caution over risks to US growth from weakness abroad and stumbling financial markets pointed to a high bar to a rate hike, weighing on the dollar. With global stocks in free fall, safe havens shined with the yen rocketing to October 2014 highs. Friday bought more congressional testimony by the Fed chair, this time to a Senate committee, and data on US weekly jobless claims which were forecast to improve.

Euro

The euro rebounded to multi-month highs against the retreating dollar, benefiting from a renewed souring in market morale. When confidence in the world economy crumbles, investors often shift risky, euro-financed carry trade bets on higher yielding currencies into reverse, squeezing the single currency higher. Sterling With worries about the health of European banks on the rise, sterling struggled alongside the wilting US currency. The pound has started to bear the brunt of financial sector woes given its influence over Britain’s economy. Banks in Europe and elsewhere have come under fire amid a global backdrop of falling interest rates, weakness compounded by concerns about potential spillover effects from falling oil prices which risk a rise on loan defaults to energy firms.

US dollar

The dollar’s accelerated descent against the yen led it lower against most major peers. The dollar caught a short-lived bounce on Wednesday after the Fed chair sounded sanguine in the underlying shape of the world’s biggest economy and kept rate hikes on the table. But her nod to global weakness reinforced the big picture view in which many see too many hurdles in the way of a rate hike. The Fed chair indicated that troubles brewing abroad and declining financial conditions at home were bad for the economy. Currencies are at risk of more volatility because of the last day of Fed chair testimony on Capitol Hill, and when data comes due on America’s economic juggernaut job market.

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