Stock markets and oil prices rallied Friday, with investors largely pricing in more central bank interest rate hikes aimed at taming surging inflation. The dollar slid as much as one percent against 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 following her death on Thursday. The LSE is expected to shut on the day of the queen’s funeral. “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. Wall Street followed the upbeat European session with a third straight positive day. The S&P 500 finished at 4,067.36, up 1.5 percent for the day and 3.6 percent for the week, snapping a three-week losing stream. 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 tone promising even more interest rate hikes. “There are hopes that the sharp rate increases from the Fed may already have dampened demand, causing US inflation to weaken,” said Fawad Razaqzada, City Index and FOREX.com analyst. The greenback’s softness came even after yet another strong statement from a leading US central banker. Fed Governor Christopher Waller on Friday was the latest to reaffirm the hawkish stance to combat rising prices. He warned that lowering inflation will take time and higher rates, and said he supports another “significant increase” in the benchmark lending rate at the September 20-21 policy meeting. In Asia, Hong Kong rose close to three percent heading into a long weekend. There was also some cheer from news that inflation in China 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. The euro was holding well above parity with the dollar, one day after the European Central Bank announced its own 75 basis-point rate increase as it warned inflation was “far too high” and likely to stay above target for “an extended period”. The yen strengthened as officials began speaking up after the unit approached a 32-year low against 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.