NEW YORK (AFP) – World stock markets mostly rose on Friday and currencies gyrated as investors digested diverging interest rate decisions by central banks on three continents this week.
In Europe, equities climbed with Frankfurt striking a new record after an upbeat session in Asia, which was lifted by hopes China will unveil fresh measures to kickstart growth.
Wall Street stocks rose at the start of trading but gave up those gains as European markets closed.
The broad-based S&P 500 finished at 4,409.59, down 0.4 per cent for the day but up 2.6 per cent for the week. Analysts said markets in New York were due for a pullback following a strong stretch.
“After a really strong week… it’s not unusual to see some mean reversion,” said analyst at B Riley Financial Art Hogan.
The euro hit a one-month peak at USD1.0973, one day after the European Central Bank (ECB) hiked interest rates to a 22-year high and warned another hike in July was very likely to tackle high inflation. It later fell back against the dollar.
The yen struck a 15-year low against the euro after the Bank of Japan maintained ultra-loose monetary policy.
Higher interest rates make currencies more attractive to traders as this boosts returns from investments such as government bonds.
“This week has seen a divergence in global central bank policy,” noted head of investment at Interactive Investor Victoria Scholar.
“Different economies are dealing with different challenges,” she added.
The US Federal Reserve held interest rates steady on Wednesday after 10 straight increases – but signalled more hikes to come to tame inflation.
It began rapidly and aggressively raising rates in March last year as inflation surged, while the ECB has adopted a more gradual approach to monetary tightening.
However, both institutions have indicated they expect more hikes will be needed to bring price increases back under control.
The People’s Bank of China went the other way this week, cutting rates to boost its flagging economy.
“China has faced a bumpier-than-expected recovery out of the pandemic, prompting its central bank to stimulate its economy,” Scholar told AFP.
