The dollar surged to a fresh two-decade high against major peers and stocks fell on Thursday after the Federal Reserve raised U.S. interest rates and forecast more hikes ahead than investors had expected.
The euro sank to a 20-year low of $0.9810 after Russia ordered the mobilisation of reserve troops in an escalation of the war in Ukraine.
S&P 500 futures were down 0.6% and the dollar was flying in early trade. The dollar index hit a 20-year high of 111.65 and the greenback’s strength sent the Aussie, kiwi and Canadian dollars down to fresh multi-year lows.
Sterling hit $1.1233, its lowest in 37 years. South Korea’s won slid past the symbolic 1,400 per dollar mark for the first time since 2009. The Thai baht, Malaysian ringgit, Singapore dollar and Swedish crown all made major new lows.
Japan’s Nikkei fell 1%. Hang Seng futures were flat, though the Golden Dragon index of U.S.-listed Chinese shares took a beating and fell 5.9% overnight.
The Fed raised rates sharply, by 75 basis points, on Wednesday – the third such rise in a row. That takes the bank’s benchmark overnight rate target range to 3-3.25%.
Projections showed officials think rates are going higher and growth is going lower and the median forecast is for the funds rate to hit 4.4% this year – higher than markets had priced and 100 bps more than the Fed projected three months ago.
“The Fed is not going to stop any time soon and there’s going to be an extended period of restrictive monetary policy for at least the next year or so,” said Sally Auld, chief investment officer at wealth manager JB Were in Sydney.
“What else do you buy except for the U.S. dollar at the moment?” she added, with growth clouds over Europe, Britain and China and the yen tanking as Japan holds interest rates low.
The U.S. yield curve deepened its inversion in a volatile session overnight as short-end Treasuries sold and the longer end rallied as investors priced out the chance of a “soft” economic landing, and braced for damage to longer-run growth.
The two-year yield rose as high as 4.1230% and was last at 4.0848%, while the 10-year yield fell 6 bps to 3.5120%. [US/]
“The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive, or restrictive for longer,” Fed Chair Jerome Powell told reporters after the rate hike announcement.
Central bank meetings in Taiwan, Japan, the Philippines, Indonesia Britain and Norway are due later in the day with hikes expected everywhere but Japan.
Japan has this week driven home its commitment to ultra-dovish policy by spending more than 2 trillion yen ($13.8 billion) in the past two days to hold a 0.25% ceiling on the 10-year Japanese government bond yield. [JP/]
However, even if no policy changes occur, there will be intense focus on Governor Haruhiko Kuroda’s views on the yen’s precipitous slide, as growing discomfort could hint at policy changes and dovishness could unleash further yen selling.
The yen is down about 20% on the dollar this year and at 144.29 per dollar is near a 24-year low.
“We see risk of USD/JPY heading to 147 in the coming months,” Rabobank strategist Jane Foley said in a note to clients.
The Australian and New Zealand dollars are pinned at their lowest since mid-2020, with the Aussie down 0.3% on Thursday to $0.6611 and the kiwi down 0.4% to $0.5831.
China’s yuan is on the weaker side of 7 per dollar. The U.S. dollar index hit a 20-year peak of 111.63 in the wake of the Fed hike.
In commodity markets oil slid on concern higher interest rates will crimp demand. U.S. crude futures were steady in early Asia trade at $82.81 a barrel. Brent futures were at $89.83. [O/R]
Wheat rose overnight on fears of wider and deeper war in Ukraine.