Stocks gain and dollar falls as investors assess policy outlook

Global shares rose on Friday, while the euro and the pound advanced against a softer dollar, as investors assessed how far major central banks would tighten monetary policy to curb inflation.

A FTSE gauge of worldwide equities added 0.7 per cent, with Europe’s regional Stoxx 600 gauge rising 1.4 per cent and Hong Kong’s Hang Seng jumping 2.7 per cent, snapping six days of losses. The FTSE 100 rose 1.5 per cent.

Futures contracts tracking Wall Street’s S&P 500 rose 0.7 per cent and those tracking the technology-heavy Nasdaq 100 gained 1 per cent.

Friday’s moves came a day after the European Central Bank raised interest rates by 0.75 percentage points to 0.75 per cent, having lifted borrowing costs in July for the first time in over a decade by half a percentage point to zero. The ECB’s rate rise and comments about further increases sparked a sharp sell-off in German government bonds on Thursday, sending Bund yields higher.

The new UK government also on Thursday announced an estimated £150bn package to shield Britain from soaring energy prices.

In currencies, the euro bounced by about 1 per cent on Friday to trade just above parity with the dollar. The common currency has fallen more than 11 per cent this year, as economic uncertainty and inflationary pressures — stoked by Russia’s invasion of Ukraine and a squeeze on gas supplies — have driven people towards the perceived safety of the dollar.

The pound also gained about 1 per cent to $1.162, having earlier this week slipped to its lowest level since 1985, according to Bloomberg data. Japan’s yen rose as much as 1.6 per cent to ¥141.72, having on Wednesday touched ¥144.98 — its weakest level against the dollar in 24 years.

Those gains were set against a softer greenback, which lost 0.9 per cent on Friday against a basket of six peers.

US Federal Reserve chair Jay Powell had on Thursday reiterated hawkish messaging that the central bank needed to “act forthrightly” on inflation and “keep at it until the job is done”, with markets pricing in a probable 0.75 percentage point interest rate rise for the world’s largest economy when the central bank announces its next monetary policy decision in late September. This would mark the third consecutive increase of such a size.

Meanwhile, the ECB’s hawkish rhetoric this week has led some analysts to expect another large increase at its next meeting in October, with Deutsche Bank now anticipating another 0.75 percentage point rise.

Eurozone bond markets were steadier on Friday, with the yield on Germany’s two-year Bund broadly flat at 1.31 per cent after surging to its highest level since 2011 in the previous session. Bond yields rise as their prices fall.

On Friday, European energy ministers will meet to discuss price caps for Russian oil and gas. Despite the common currency’s early bounce on Friday, Chris Turner, a currency analyst at ING, said the meeting “may prove bearish for the euro”, citing the risk of a failure to reach an agreement, of Russia retaliating by suspending fuel shipments to the EU, or of social unrest from mandatory cuts to electricity use.

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