The dollar broke the 145 yen mark for the first time since 1998
European stocks sank Thursday following sharp losses in Asia and on Wall Street, but the dollar spiked after the Federal Reserve signalled more hefty US interest rate hikes.
Equities tanked after the US central bank warned of more pain to come, as it unveiled the third straight jumbo rate increase on Wednesday to tackle decades-high inflation.
The British pound briefly dived to a new 37-year low at $1.1212, even as the Bank of England prepared to announce its second bumper rate rise in a row later Thursday.
The greenback also soared to a fresh 24-year high of 145.90 yen, prompting the Bank of Japan to embark on a rare intervention to protect its currency. The euro wallowed at a 20-year dollar low.
– Pricing in recession –
“Share prices are falling, the dollar is surging, and the bond market is pricing in a recession as the US Federal Reserve keeps tightening monetary policy and seemingly snuffs out any hope for a pivot or even a pause in its new-found zeal for fighting inflation,” said AJ Bell investment director Russ Mould.
“Fed chair Jerome Powell … noted there was no painless way to bring inflation under control,” he added.
The world’s major central banks are rushing to ramp up rates to dampen red-hot global consumer prices, but traders fear rising borrowing costs will herald recession.
Switzerland and Norway sprang hefty interest rate hikes on Thursday, mirroring this week’s big rises in Sweden and the United States.
In Asia, Indonesia and the Philippines also tightened monetary policy but the BoJ left its status quo in place.
While the Fed’s 0.75-percentage-point rise was widely expected, there was some surprise at the central bank’s forecast that borrowing costs would likely be held above four percent throughout next year.
Powell reiterated his determination to focus on bringing down inflation — which is at a four-decade high — and accepted that the campaign would hit Americans hard.
– No ‘painless way’ –
“We have got to get inflation behind us,” Powell said after the decision.
“I wish there were a painless way to do that. There isn’t.”
He added that “the historical record cautions strongly against prematurely loosening policy” and the Fed would “keep at it until the job is done”.
In reaction, Wall Street tumbled as traders contemplated an era of higher-for-longer rates, which could hit companies’ bottom lines.
Asia followed suit, with Hong Kong down at an 11-year low — while Tokyo, Shanghai, Seoul, Singapore, Mumbai, Taipei and Manila also down.
The Fed has for months tried to walk a fine line between fighting soaring prices and trying to keep the economy from contracting, but officials accept the chances of success are narrow.
“With the new rate projections, the Fed is engineering a hard landing — a soft landing is almost out of the question,” said Seema Shah, of Principal Global Investors.
Commentators are now betting on a fourth straight 75-basis-point rate hike at the next Fed meeting in November.
Oil prices extended recent gains after Russian President Vladimir Putin’s announced a partial mobilisation of the Russian army and a veiled threat to use nuclear weapons against the West.
– Key figures at around 1015 GMT –
London – FTSE 100: DOWN 0.4 percent at 7,211.71 points
Frankfurt – DAX: DOWN 0.7 percent at 12,680.86
Paris – CAC 40: DOWN 0.8 percent at 5,985.64
EURO STOXX 50: DOWN 0.7 percent at 3,468.83
Tokyo – Nikkei 225: DOWN 0.6 percent at 27,153,83 (close)
Hong Kong – Hang Seng Index: DOWN 1.6 percent at 18,147.95 (close)
Shanghai – Composite: DOWN 0.3 percent at 3,108.91 (close)
New York – Dow: DOWN 1.7 percent at 30,183.78 (close)
Pound/dollar: UP at $1.1332 from $1.1270 Wednesday
Euro/dollar: UP at $0.9875 from $0.9837
Euro/pound: DOWN at 87.14 pence from 87.29 pence
Dollar/yen: DOWN at 142.50 yen from 144.06 yen
Brent North Sea crude: UP 1.0 percent at $90.76 per barrel
West Texas Intermediate: UP 1.2 percent at $83.89 per barrel
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