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Stocks and oil rally as dollar drops

·4-min read

Stock markets and oil prices rallied Friday, with investors largely pricing in more interest rate hikes aimed at taming runaway inflation.

The dollar slid as much as one percent versus the pound and euro after recent hefty gains.

London's stock market jumped 1.2 percent, mirroring advances in Paris and Frankfurt, while the British capital's exchange mourned the death of Queen Elizabeth II.

"We are deeply saddened at the passing of Her Majesty Queen Elizabeth II," the London Stock Exchange said in a message posted on its website.

The LSE is expected to shut on the day of the queen's funeral following her death on Thursday.

"Markets are being very British about the whole thing, carrying on in a fashion that I suspect she would have approved of," said IG analyst Chris Beauchamp.

- Dollar off highs -

The more confident mood across equity and oil markets was reflected in a cooler dollar, which had surged to multi-decade highs against major peers in recent weeks owing to the US Federal Reserve's hawkish tilt to tighter monetary policy.

"There are hopes that the sharp rate increases from the Fed may already have dampened demand, causing US inflation to weaken," said City Index and FOREX.com analyst Fawad Razaqzada.

The greenback's softness came even after Fed chief Jerome Powell reasserted the US central bank's determination to keep hiking interest rates to fight prices, even at the cost of economic growth.

His warning that "we need to act now forthrightly, strongly" followed comments from his deputy Lael Brainard, who said policymakers would lift borrowing costs for as long as it takes to bring inflation down from 40-year highs.

Nevertheless, Wall Street has pushed higher on Thursday and Friday, putting markets on course for a weekly gain and easing some pressure after hefty losses in August caused by worries that rising rates would spark a recession.

In Asia, Hong Kong rose close to three percent heading into a long weekend.

Edward Moya, analyst at trading platform OANDA, said traders cheered as "Powell stuck to his hawkish script and affirmed the commitment to tighten policy until inflation is back towards their target."

There was also some cheer from news that inflation in China had eased slightly in August, giving the government more room to introduce more economy-supporting measures, though the recovery remains hostage to leaders' strict zero-Covid strategy of growth-sapping lockdowns.

A Thursday pledge by Britain's new Prime Minister Liz Truss to freeze domestic energy bills for two years also helped temper inflation concerns and boosted sentiment about the economy.

The euro was holding well above parity with the dollar, one day after the European Central Bank announced its own 75 basis-point rise as it warned inflation was "far too high" and likely to stay above target for "an extended period".

ECB chief Christine Lagarde suggested policy would continue to be tightened for some time.

The yen strengthened as officials began speaking up after the unit approached a 32-year low versus the greenback.

The pick-up came after Bank of Japan chief Haruhiko Kuroda met Prime Minister Fumio Kishida on Friday before saying "the rapid weakening of the yen is undesirable".

The talks were seen as a sign of intent to act in support of the currency if it continued to weaken.

- Key figures at around 1530 GMT -

New York - Dow: UP 1.0 percent at 32,086.36 points

EURO STOXX 50: UP 1.2 percent at 3,570.04

London - FTSE 100: UP 1.2 percent at 7,351.07 (close)

Frankfurt - DAX: UP 1.4 percent at 13,088.21 (close)

Paris - CAC 40: UP 1.4 percent at 6,212.33 (close)

Tokyo - Nikkei 225: UP 0.5 percent at 28,214.75 (close)

Hong Kong - Hang Seng Index: UP 2.7 percent at 19,362.25 (close)

Shanghai - Composite: UP 0.8 percent at 3,262.05 (close)

Euro/dollar: UP at $1.0037 from $1.0001 on Thursday

Pound/dollar: UP at $1.1580 from $1.1500

Euro/pound: DOWN at 86.66 pence from 86.93 pence

Dollar/yen: DOWN at 142.52 yen from 144.07 yen

Brent North Sea crude: UP 3.0 percent at $91.82 per barrel

West Texas Intermediate: UP 3.1 percent at $86.15 per barrel

burs-rl/lth