Most major central banks have announced their intention to pursue interest rate hikes, which has sparked concerns about the outlook for global economic growth.

Major central banks have surprised the market with their aggressive actions, raising concerns about the global economy. As a result, a risk-off sentiment has emerged, causing the US dollar to strengthen against vulnerable currencies. The US Dollar Index (DXY) reached 102.65 during the Asian session on Friday (23rd June).

US Dollar Index

Yesterday, both the Swiss Central Bank (SNB) and the Bank of England (BOE) announced interest rate hikes more hawkishly than anticipated. The SNB raised rates by 25 basis points, while the BOE implemented a 50 basis point hike. Additionally, both central banks projected higher inflation rates for 2023 and 2024, indicating their willingness to raise rates further if inflation remains elevated.

The Reserve Banks of Australia (RBA), Canada (BOC), and New Zealand (RBNZ) have previously raised interest rates beyond expectations in the first half of this month. On Wednesday, Fed Chairman Jerome Powell also laid out hawkish commitments in testimony before the US Congress.

All major central banks have confirmed that they will continue to tighten policy aggressively for the rest of the year, except the Bank of Japan (BOJ). Analysts previously predicted several banks would start cutting interest rates this year.

With the monetary situation tighter than everyone expected, analysts fear the global economic slowdown will sharpen as a side effect of too high-interest rates. This triggered risk-off in some highest-risk currencies, including the Australian dollar and the pound sterling.

"With the Bank of England set to raise rates substantially further, we expect the UK economy to come under renewed pressure by late 2023, and look for growth to either stagnate or even for the economy to contract," said Nick Bennenbroek, international economist at Wells Fargo, cited from Reuters.

"Markets are definitely taken by surprise by the recent, more aggressive actions that some central banks had to take," said Khoon Goh, head of Asia research at ANZ. "Also putting into question the following trend of other central banks that initially looked like they've paused but went on to hike rates ... so that's something that markets are starting to become worried about again."