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The dollar climbed to a six-month high on Friday, ending a week in which U.S. stock and bond markets weakened and investors braced for an extended period of high interest rates.

The currency hit its highest level against the euro, pound and yen since at least March after the Federal Reserve announced plans to cut interest rates – now at a 22-year high – at a much slower rate than economists expected had thought.

U.S. Treasury bond prices fell, sending yields to their highest level in 16 years, while the S&P 500 benchmark index of U.S. blue-chip stocks suffered one of its deepest weekly declines of the year.

“Markets have taken a pretty negative view of the Federal Reserve,” said James Briggs, portfolio manager at Janus Henderson Investors. “Higher and longer is clearly entrenched and the belief is that we are in a new regime.”

The Fed’s decision to leave interest rates unchanged this week and signal its determination to cut them slowly next year and into 2025 was followed by the Bank of England also emphasizing the importance of keeping interest rates high.

The European Central Bank raised its own interest rates to an all-time high this month.

The recent decline in bond prices in the U.S. and euro zone came after months of sell-offs in global bond markets, largely driven by higher interest rates and higher inflation.

Some market participants warn that the chilling effect of a prolonged period of high interest rates also makes stock markets more vulnerable due to the impact of higher borrowing costs on the broader economy.

“It’s an unstable situation,” said Joseph Davis, chief global economist at Vanguard, who argued that inflation has typically been defeated in the past at the expense of lower growth. “There have been few examples of inflation falling without compromise,” he said.

Signs that the U.S. is proving more resilient than other major economies have helped the dollar rise 6 percent against a basket of other currencies since mid-July.

Jobless claims fell this week to their lowest level since January, while jobless claims fell to near eight-month lows.

“I think the U.S. is leading the way,” said Robert Tipp, head of global bonds at PGIM Fixed Income. He argued that markets are finally convinced that the Fed will keep interest rates high – in part because the country’s economic outlook is better than elsewhere.

In an effort to curb inflation, which topped 9 percent last year, the Fed has raised interest rates by 5.25 percentage points in 18 months – one of the most aggressive monetary tightening cycles in its recent history.

“Investors have been living in the future and pricing in cuts, but markets have turned to the Fed as growth has been decent,” Tipp said.

In contrast, ECB chief economist Philip Lane said on Friday that risks to the region’s growth were “tilted to the downside” as manufacturing activity “is expected to remain weak” and there were “clear signs of a slowdown” in the services sector.

The ECB has indicated it remains open to further rate hikes, but Friday’s closely watched Purchasing Managers’ Index showed companies reporting month-on-month declines in output and orders. The euro weakened after the data was released.

Sterling also fell after U.K. purchasing managers’ indices showed a slowdown in services activity, exacerbating the currency’s losses in a week in which inflation fell faster than expected and the BoE rejected expectations of a rate hike.

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