The dollar rocketed to a new two-decade high against key peers on Thursday, but stocks slumped after the Federal Reserve hiked interest rates and forecasted more hikes than investors expected. The euro fell to a 20-year low of $0.9810 after Russia ordered the mobilization of reserve soldiers as the situation in Ukraine escalated.

In early trade, the S& P 500 futures were down 0.6%, and the dollar was flying. The dollar index reached a 20-year high of 111.65, sending the Australian, New Zealand, and Canadian currencies to multi-year lows. Sterling fell to $1.1233, its lowest level in 37 years. For the first time since 2009, the South Korean won surpassed the symbolic 1,400 per dollar barrier. The Thai baht, Malaysian ringgit, Singapore dollar, and Swedish crown all hit fresh lows.


Japan’s Nikkei 225 index lost 1%. The Hang Seng futures were steady, but the Golden Dragon index of Chinese stocks registered in the United States sank 5.9% overnight. On Wednesday, the Fed hiked interest rates by 75 basis points, the third such increase in a row. The bank’s benchmark overnight rate goal range now stands at 3–3.25%.

According to projections, officials believe rates will rise as growth will slow. The median expectation is for the fund’s rate to reach 4.4% this year, which is greater than markets had anticipated and 100 basis points higher than the Fed projected three months ago. “The Fed is not going to stop anytime soon, and there will be an extended period of tight monetary policy for at least the next year or two,” said Sally Auld, chief investment officer at Sydney-based wealth manager JB Were.

“What else do you buy but the US dollar at the moment?” she asked, as growth concerns loom over Europe, the United Kingdom, and China, and the yen falls as Japan keeps interest rates low. Overnight, investors priced in the possibility of a “soft” landing for the economy and got ready for damage to long-term growth. This caused short-term Treasuries to be sold and long-term Treasuries to go up.

The two-year yield climbed to 4.1230% and was last at 4.0848%, while the 10-year yield decreased six basis points to 3.5120%. “The chances of a gentle landing are likely to decline to the extent that policy needs to be more restrictive or restrictive for a longer period of time,” Fed Chair Jerome Powell said after the rate hike announcement.

Later in the day, central bank meetings in Taiwan, Japan, the Philippines, Indonesia, Britain, and Norway are scheduled, with hikes predicted everywhere except Japan. Japan has demonstrated its commitment to ultra-dovish policy by spending more than 2 trillion yen ($13.8 billion) in the last two days to keep the 10-year Japanese government bond yield at 0.25%.

Even if no policy changes materialize, Governor Haruhiko Kuroda’s opinions on the yen’s steep fall will be closely watched, as increased uneasiness could signal policy adjustments, and dovishness could spark further currency selling. The yen has dropped over 20% against the dollar this year, and it is close to a 24-year low at 144.29 per dollar. In a client letter, Rabobank strategist Jane Foley wrote, “We anticipate the risk of USD/JPY moving to 147 in the coming months.”.

The Australian and New Zealand dollars are at their lowest levels since mid-2020, with the Aussie down 0.3% to $0.6611 on Thursday and the Kiwi down 0.4% to $0.5831. The Chinese yuan is trading near 7 per dollar. Following the Fed’s hike, the US dollar index reached a 20-year high of 111.63.

Oil prices fell in commodity markets as investors worried that increasing interest rates would reduce demand. In early Asian trade, US oil futures were unchanged at $82.81 per barrel. Brent futures were trading at $89.83. Wheat prices surged overnight on worries of a bigger and worse conflict in Ukraine.

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