The dollar lost some of its strength on Tuesday after the start of the week, including a record high against the pound, although equity traders struggled to recover from recent losses on recession fears. .
While central banks around the world are raising interest rates to fight inflation, the focus is on the increasingly hawkish tone of the US Federal Reserve, which has warned of more to come with three bumper hikes in a row. has been unveiled.
That has seen investors pile into the dollar, sending it to record or multi-decade highs, shaking governments from Tokyo to Beijing and London.
It hit an all-time high against the pound on Monday — hitting $1.0350 after traders feared a mini-budget with massive tax breaks from Britain’s new finance minister, Kwasi Kwarteng. has been.
Sterling started a small recovery but fell back after traders were frustrated by the lack of concrete action from the Bank of England, with Governor Andrew Bailey saying only that he would raise rates as needed. Will not hesitate to do so.
The dollar’s rally against the pound was matched by developments in forex markets, with the euro hitting a 20-year low and the yen pushed back to levels after the government intervened to support the currency last week.
But the greenback’s gains ran out of steam on Tuesday as markets regained some stability, although analysts warned that volatility would remain high as more global rate hikes were in the pipeline and geopolitical crises remained unresolved. were
Added to this were fears that inflation was too high.
“The market is pricing in some of the Fed’s hikes, but we’re a little concerned that it might not be pricing in everything,” Lily Pence of Pence Wealth Management told Bloomberg Television.
“We got whipped in August when inflation didn’t come down — everybody’s worried.”
Another sell-off in Wall Street stocks saw the S&P 500 hit its lowest close since December 2020, and Asia also struggled.
Tokyo, Shanghai and Sydney were all rosy, but screens in Hong Kong, Singapore, Seoul, Wellington, Taipei, Manila and Jakarta flashed red.
“Financial markets are a mess right now,” said OANDA’s Edward Moya.
“Wall Street is realizing that we won’t see any significant signs that inflation is easing fast enough over the next couple of months, making dip buying difficult just yet.”
Oil prices rose slightly, although both contracts remained at their lowest levels since January on concerns about demand due to a stronger dollar and an expected recession.
And Moya added that it looked unlikely that the commodity would stage a near-term recovery, despite speculation that major producers could announce new production cuts.
“Chaos in foreign exchange markets could keep crude prices high no matter what OPEC+ does in the short term,” he wrote. “Forex volatility is not going away anytime soon and will send oil on a very long roller coaster ride.
