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US Dollar Rises, Stock Markets Decline on Economic Growth Concerns

Stocks extended their losses and the US dollar climbed to 20-year highs today, Monday. The Asian stocks’ fall, and US stock futures’ decline was spurred by a “fresh” round of risk aversion emerging from high inflation, rate hikes, and economic slowdown concerns.

US Federal Reserve

The US Fed increased its benchmark funds rate by 50 basis points last week. Last Friday’s strong employment data caused investors to expect further high hikes. This week’s inflation figures are on their watchlist. Futures markets point to a 75% chance for a 75 basis points hike at the Fed’s meeting in June and a higher than 200 basis points rise by the end of 2022.

The benchmark 10-year US government bonds yield has risen 163 basis points and pushed the dollar higher along with it. Inflation data are scheduled to be released this week and they could possibly cause waves in the bond-market. Volatility remains as the predominant theme in the markets on grounds of rising inflation, slowing economic growth and war risk. President Vladimir Putin is set to speak at Russia’s May 9 Victory Day parade and could declare “war” – instead of a “special military operation” – on Ukraine. Such a statement or any indications for his next steps in Ukraine could further affect market sentiment.

Forex

The US dollar hit a two-decade high today, Monday, as investors are turning to the currency for safety and yield amid slowing economic growth worries sparked by inflation, Ukraine war and China’s lockdowns. As the market prospects are uncertain, investors see US interest rates going up with the dollar following.

In the meantime, the Australian dollar fell to its lowest level since February while the British pound and the New Zealand dollar fell to 22-month lows. The euro and yen barely moved above their latest troughs and the Indian rupee fell to a record low against the US dollar.

The Chinese yuan fell to an 18-month low after the nation’s trade data showed that April imports flatlined while exports increased 3.9%. There has been no let-up in China’s Covid lockdowns.

Crude Oil

Oil traded around $110 per barrel. Demand has been hit due to China’s Covid-19 lockdowns while the supply risk connected to Russian’s invasion in Ukraine is evident.

After a video call with Ukraine President Volodymyr Zelensky, the G-7 leaders committed to banning oil imports from Russia. At the same time, the European Union is working towards implementing a similar plan as the bloc’s talks continue.

Cryptocurrencies

Demand for cryptos has been hit as investors are moving away from risky assets. Bitcoin is trading around $33,000 at the time of writing while Ether is trading around 2,400.

What to Watch out for this Week:

Monday
Russian President Vladimir Putin’s speech on Victory Day
Presidential Election in the Philippines

Tuesday
Cleveland, Atlanta, New York Fed Presidents’ speeches
Fed Governor’s speech

Wednesday
Atlanta Fed President’s speech
China PPI, CPI.

Thursday
US CPI.