# Dollar dishes the pain as selloff rumbles on
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-09-29
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Investors Brace for Dollar Dominance Amid Recession Fears
Meta Description: Investors face another cycle of selling as the dollar dominates, recession fears hit equities, and UK debt worries weigh on the pound and euro. Stay informed.
URL: https://financedigest.com/dollar-dishes-the-pain-as-selloff-rumbles-onhtml

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By Marc Jones

LONDON (Reuters) – Investors pedalled into another cycle of selling on Thursday as the dollar tightened its stranglehold on currency markets, recession fears sapped equities and bonds suffered more interest rate pain.

Europe’s morning was rough. The STOXX 600 share index was still down 1.3% having opened 2% lower, Wall Street looked set to drop and the [euro and the pound](https://www.financedigest.com/pound-hits-10-month-peak-euro-up-as-dollar-under-pressure.html "Pound hits 10-month peak, euro up as dollar under pressure"), hammered over the last week by UK debt concerns, were struggling again. \[.EU\]\[/FRX\]

China currency intervention expectations were building too, while Europe watched German inflation soar to nearly 11% for the first [time since](https://www.financedigest.com/soccer-arsenal-reach-womens-champions-league-semis-for-first-time-since-2013.html "Soccer-Arsenal reach Women’s Champions League semis for first time since 2013") the 1950s and Russia formally proclaim more of Ukraine as its territory.

[British Gilt selling had also resumed a day after the Bank](https://www.financedigest.com/hsbc-acquires-british-arm-of-stricken-silicon-valley-bank.html "HSBC acquires British arm of stricken Silicon Valley Bank") of England had dramatically intervened to try and quell the storm surround the UK government’s new spending plans. \[GVD/EUR\]

The market wouldn’t mind some stability, it has [become a little bit unpredictable,” said Barings Investment](https://www.financedigest.com/uk-becoming-less-attractive-for-investment-manufacturers-warn-2.html "UK becoming less attractive for investment, manufacturers warn") Institute’s Chief European strategist, Agnes Belaisch.

She said investors were now seeing “incoherence” in the UK with government spending big as the BoE tries to rein in inflation, while everywhere else the [focus is on how high central banks](https://www.financedigest.com/dollar-skulks-at-eight-month-low-central-bank-meetings-in-focus.html "Dollar skulks at eight-month low, central bank meetings in focus") are prepared to go with interest rates.

Germany’s 10-year government bond yield, the benchmark of the euro zone, jumped as high as 2.27%, as pacey numbers from North Rhine-Westphalia signalled the 10.9% [inflation figure](https://www.financedigest.com/french-inflation-revised-upwards-in-february-to-7-3-final-figures.html "French inflation revised upwards in February to 7.3% – final figures") for the country as a whole that came later.

The UK 10-year gilt yield, which drives UK borrowing costs, rose 15 bps to 4.16% after falling almost 50 bps the day before due to the BoE’s sudden intervention, although the 30-year yield being targeted by the [central bank](https://www.financedigest.com/testing-waters-hungarys-central-bank-flags-cut-in-top-end-of-rate-corridor.html "Testing waters, Hungary’s central bank flags cut in top end of rate corridor") did see another dip.

UK Prime Minister Liz Truss defended her new economic programme that has sent sterling to a record low this week and left the UK’s borrowing costs close to Greece’s – [saying it was designed to tackle the difficult situation Britain](https://www.financedigest.com/britain-sets-5g-goal-says-no-magic-number-of-operators.html "Britain sets 5G goal, says no ‘magic number’ of operators") was now in.

We are facing difficult economic times,” Truss, who only took over as UK [Prime Minister](https://www.financedigest.com/factbox-who-will-replace-uk-prime-minister-boris-johnson.html "Factbox-Who will replace UK Prime Minister Boris Johnson?") this month, said on local BBC radio. “I don’t deny this. This is a global problem. But what is absolutely right is the UK [government has stepped in and acted.”](https://www.financedigest.com/factbox-governments-act-to-ease-inflation-pain.html "Factbox-Governments act to ease inflation pain")

‘BIT OF A MESS’

Zooming back out, it was still about the [dollar which has crushed currencies](https://www.financedigest.com/u-s-dollar-advances-vs-major-currencies-as-risk-appetite-fades.html "U.S. dollar advances vs major currencies as risk appetite fades") virtually everywhere this year, as well as the impact of Russia’s invasion of Ukraine.

Speaking with reporters in London on Wednesday, veteran Federal Reserve [policymaker Charles Evans gave no indication that any of the recent FX and bond](https://www.financedigest.com/euro-zone-bond-yields-fall-as-ecb-policymaker-flags-recession-risk-gilts-eyed.html "Euro zone bond yields fall as ECB policymaker flags recession risk, gilts eyed") market drama would blow the U.S. central bank off its [rate hike](https://www.financedigest.com/uk-economys-unexpected-bounce-spurs-more-boe-rate-hike-talk.html "UK economy’s unexpected bounce spurs more BoE rate hike talk") course.

We just [really need to get inflation](https://www.financedigest.com/be-really-really-careful-on-inflation-bank-of-englands-haskel.html "Be ‘really, really careful’ on inflation – Bank of England’s Haskel") in check,” Evans said, backing lifting the Fed’s rates – now at 3%-3.25% – to a range of 4.5%-4.75% by the end of the year or March.

[Federal Reserve Bank](https://www.financedigest.com/federal-bank-drives-digital-india-vision-with-intellect-transaction-banking.html "Federal Bank drives “Digital India” vision with Intellect Transaction Banking") of Cleveland President Loretta Mester echoed that on Thursday, saying she didn’t see distress in U.S. financial [markets that would alter the central bank’s](https://www.financedigest.com/deutsche-bank-equity-bear-market-rally-will-stretch-into-2023-dollar-weaker.html "Deutsche Bank: Equity bear market rally will stretch into 2023, dollar weaker") campaign..

FX [market moves](https://www.financedigest.com/the-next-upcoming-years-to-see-the-dental-biomaterial-market-move-exponentially-upwards.html "The Next Upcoming Years To See The Dental Biomaterial Market Move Exponentially Upwards") saw the U.S. dollar index, which measures the currency against sterling, the euro and four other peers, [rise back towards](https://www.financedigest.com/euro-rises-after-spanish-cpi-dollar-slips-towards-8-mth-low.html "Euro rises after Spanish CPI, dollar slips towards 8-mth low") its recent 20-year high again having had its worst session in 2-1/2 years on Wednesday. \[/FRX\]

Overnight, [China’s yuan](https://www.financedigest.com/dollar-slips-yuan-gains-on-china-pmi-hot-inflation-lifts-euro.html "Dollar slips, yuan gains on China PMI; hot inflation lifts euro") had fallen again too, although it stayed just off recent post-financial crisis lows, as China’s central bank said stabilising the foreign exchange market was its top priority and on reports of potential FX intervention too. \[CNY/\]

MSCI’s broadest index of Asia-Pacific shares outside Japan [ended the day](https://www.financedigest.com/amazon-to-lay-off-staff-in-u-s-canada-and-costa-rica-by-end-of-day.html "Amazon to lay off staff in U.S., Canada and Costa Rica by end of day") virtually flat, although Japan’s Nikkei did manage a near 1% rise. \[.T\]

S&P 500 futures pointed to [Wall Street](https://www.financedigest.com/wall-street-stocks-power-higher-as-treasury-yields-and-dollar-ease.html "Wall Street stocks power higher as Treasury yields and dollar ease") falling as much as 1% later with more Fed policymakers also due to speak. \[.N\]

The interest [rates investors now get on the government’s Treasury bonds – which are considered virtually risk-free if held to maturity – now dwarf the S&P 500’s dividend yield](https://www.financedigest.com/wall-st-indexes-mixed-treasury-yields-tick-up-as-higher-rates-loom.html "Wall St indexes mixed, Treasury yields tick up as higher rates loom"). \[.N\]

Weekly jobless claims [data bucked expectations with an unexpected fall showing how tight labor](https://www.financedigest.com/dollar-firms-after-u-s-labor-data-suggests-more-rate-hikes.html "Dollar firms after U.S. labor data suggests more rate hikes") market remains. U.S. [GDP fell at an unrevised 0.6% annualized rate last quarter](https://www.financedigest.com/german-gdp-contracted-by-0-4-in-the-fourth-quarter.html "German GDP contracted by 0.4% in the fourth quarter"), the government said in its third estimate of GDP. The [economy contracted at a 1.6% rate](https://www.financedigest.com/interest-rate-hold-signals-confidence-in-uk-economy.html "Interest rate hold signals confidence in UK economy ") in the first quarter.

Recession angst combined with [supply issues](https://www.financedigest.com/uks-j-d-wetherspoon-returns-to-profit-as-supply-issues-ease.html "UK’s J D Wetherspoon returns to profit as supply issues ease") and the strong dollar meant oil prices see-sawed after gaining more than $3 in the prior session. \[O/R\]

Goldman Sachs [cut its 2023 oil price forecast this week](https://www.financedigest.com/meta-plans-to-cut-thousands-of-jobs-as-soon-as-this-week-bloomberg-news.html "Meta plans to cut thousands of jobs as soon as this week – Bloomberg News"), citing expectations of weaker demand and a stronger U.S. dollar, but said global [supply issues](https://www.financedigest.com/gsk-expects-us-launch-of-rsv-vaccine-with-no-supply-issues.html "GSK expects US launch of RSV vaccine with no supply issues") reinforced its long-term view that prices could rise again.

Brent crude futures were last up at $89.82 a barrel, having dropped to $87.33 per barrel earlier, while U.S. crude futures hovered at $82.30 and gold fell 0.6% to $1,649 an ounce.

“It’s all a bit of a mess,” said ANZ economist Finn Robinson.

($1 = 0.9252 pounds)

(Reporting by Marc Jones; Editing by Andrew Heavens and Toby Chopra)


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