Dollar, U.S. short-end bond yields rise after Powell comments; ECB raises rates

© Reuters. People walk past a screen displaying the Hang Seng stock index outside Hong Kong Exchanges, in Hong Kong, China July 19, 2022. REUTERS/Lam Yik/File Photo

By Caroline Valetkevitch

NEW YORK (Reuters) -The dollar index and shorter-dated U.S. Treasury yields rose on Thursday after Federal Reserve Chair Jerome Powell said the central bank was "strongly committed" to controlling inflation, while euro zone government bond yields jumped after the European Central Bank raised interest rates by a record 75 basis points.

The ECB also signalled further hikes to fight inflation, even as the bloc's economy is heading for a likely winter recession.

Euro zone government bond yields rose in the wake of the news. Germany's two-year bond yield touched the highest since June at 1.305%.

At a Cato Institute conference, Powell also said inflation can be controlled without the "very high social costs" involved previously.

"It's important to remember the lesson we all learned years ago, and that's don't fight the Fed," said Oliver Pursche, senior vice president at Wealthspire Advisors in New York. "And the Fed is telling us that they're laser-focused on inflation."

Fed officials are heading into a blackout period before their Sept. 20-21 meeting, when they are expected to raise the fed funds rate by another 75 basis points, increasing it to 3.0% to 3.25%.

Worries that central banks will remain hawkish and inflation will remain persistently high has sent government bond yields higher globally in recent weeks.

The benchmark U.S. 10-year note yield was last at 3.264%. It has risen from a four-month low of 2.516% on Aug. 2, but is holding below the 11-year high of 3.498% reached on June 14. The two-year yield was last 3.493%, below the 3.551% hit last Thursday, which was the highest since November 2007.

Global stocks rose, with the S&P 500 index up after initially falling on Powell's comments.

On Wall Street, the Dow Jones Industrial Average rose 108.77 points, or 0.34%, to 31,690.05; the S&P 500 gained 16.13 points, or 0.41%, ato 3,996; and the Nasdaq Composite added 51.99 points, or 0.44%, at 11,843.89.

The pan-European STOXX 600 index rose 0.44% and MSCI's gauge of stocks across the globe gained 0.57%.

The dollar index rose 0.228%, with the euro down 0.38% at $0.9961.

The Japanese yen weakened 0.20% to 143.99 per dollar.

Japan is ready to take action to deal with swift moves in the yen, Deputy Chief Cabinet Secretary Seiji Kihara said on Thursday, repeating the government's warnings as the currency hovered around 24-year lows.

Sterling was last trading at $1.1493, down 0.28% on the day.

On Wednesday, Britain's battered pound fell to its lowest against the dollar since 1985.

New UK Prime Minister Liz Truss announced a 100 billion pound ($115 billion)-plus package of measures to cap soaring energy bills.

U.S. crude rose 1.61% to $83.26 per barrel and Brent was at $88.79, up 0.9% on the day.

(Additional Reporting by Marc Jones in London and Stephen Culp and Karen Brettell in New York; Editing by Raissa Kasolowsky, Mark Porter and Richard Chang)