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On Central Bank Watch, Stock Markets Wane While Dollar Soars

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As a result of the Federal Reserve’s warning that US interest rates would rise more than initially anticipated in its battle against decades-high inflation, Asian and European stock markets plunged and the dollar rose on Thursday.

As anticipated, the Fed announced a fourth consecutive 0.75 percentage point increase on Wednesday, making it the sixth increase this year to control spiraling prices.

The pound and the dollar both experienced significant gains on Thursday as the Bank of England prepared to announce its own significant interest rate hike in a decision scheduled for 1200 GMT.

British borrowing prices will likely go to their greatest level since 2008 as the BoE is expected to increase its main rate by 0.75 percentage points to three percent, the most in 33 years.

With a quarter-point rise, Norway’s central bank hiked its policy rate for a fourth time in a row, bringing it to 2.5 percent, its highest level since 2009.

On Thursday, oil prices also dropped significantly as concerns of a worldwide recession rose as a result of aggressive rate hikes.

Due to their policy relationship via the dollar peg, Hong Kong’s central bank increased rates in line with the Fed, leading to market losses.

Traders reversed some of the gains made over the previous two days, which were fueled by rumors that China was considering rolling back parts of its severe zero-Covid restrictions.

Beijing’s health authority’s assurance that the plan will be followed contributed to the selling.

Some way to go

According to Mark Haefele, chief investment officer at UBS Global Wealth Management, “stocks slumped… after the Federal Reserve hiked benchmark interest rates and indicated that there was still some distance to go in its attempts to manage inflation.”

Stocks had risen for more than a week prior to the Fed’s announcement on expectations the US central bank would signal that rate tightening may soon reach a climax as the world’s largest economy showed signs of slowing.

However, Powell dashed their hopes by stating during a press conference that “incoming data since our last meeting implies that ultimate level of interest rates will be higher than previously envisaged.”

Until borrowing costs reached the required level, he continued, “we still have some ways” to go, and it “is quite early to be thinking about pausing.”

Investors now anticipate that Fed rates will reach a maximum of more than 5%, up from a previous expectation of 4%.

On growing concerns that rising borrowing prices may reduce consumer and company spending and trigger a worldwide recession, global shares have fallen this year.

When it comes to how quickly the currently relentless — and perhaps harmful — series of rate hikes may end, the Federal Reserve “didn’t offer any meaningful crumbs of comfort for markets or indeed the world economy,” according to Scope Markets analyst James Hughes.

Relevant and important information around 1030 GMT

London – FTSE 100: DOWN 0.4 percent at 7,113.98 points

Frankfurt – DAX: DOWN 0.8 percent at 13,156.90

Paris – CAC 40: DOWN 0.6 percent at 6,238.31

EURO STOXX 50: DOWN 0.8 percent at 3,593.41

Hong Kong – Hang Seng Index: DOWN 3.1 percent at 15,339.49 (close)

Shanghai – Composite: DOWN 0.2 percent at 2,997.81 (close)

Tokyo – Nikkei 225: Closed for a holiday

New York – Dow: DOWN 1.6 percent at 32,147.76 (close)

Pound/dollar: DOWN at $1.1258 from $1.1390 Wednesday

Euro/dollar: DOWN at $0.9754 from $0.9816

Dollar/yen: UP at 148.16 yen from 147.90 yen

Euro/pound: UP at 86.64 pence from 86.17 pence

Brent North Sea crude: DOWN 1.4 percent at $94.80 per barrel

West Texas Intermediate: DOWN 1.8 percent at $88.40 per barrel


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