Global central banks are on high alert to combat a resurgence of inflation, putting downward pressure on the dollar, which fell by more than 1%.
Odaily Planet Daily reports that non-US currencies strengthened across the board, putting pressure on the US dollar index, which fell more than 1% in late New York trading on Thursday. Central banks in the US, Japan, the UK, Canada, and the Eurozone held policy meetings this week, along with several emerging market central banks, making it a rare "super central bank week." On Wednesday, the Federal Reserve and the Bank of Canada both decided to keep interest rates unchanged; on Thursday, the Bank of Japan, the Bank of England, the European Central Bank, and the central banks of Switzerland and Sweden made the same decision. These central banks made it clear they would remain vigilant, concerned that rising energy prices could trigger a wave of inflation across the wider economy. Even the Brazilian central bank, which has the highest interest rate among major economies, opted to only slightly lower its benchmark rate by 25 basis points to 14.75%, while the market expected a 50 basis point cut. "This escalation in Iran seems to be a turning point for the market, as the conflict is no longer just about military headlines or the Strait of Hormuz blockade," said Haru Chanana, chief investment strategist at Saxo Bank in Singapore. "It's now impacting the lifeline of the global energy system. What's currently unsettling the market is the growing risk of stagflation."