# Dollar gains as Wall Street retreats on future Fed hikes
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-01-28
Category: BUSINESS
Category URL: https://financedigest.com/category/business
Meta Title: U.S. Stocks Retreat After Strong Opening Amid Fed Rate Hike
Meta Description: Stay informed on the latest market trends as U.S. stocks dip and the dollar rises with expectations of future rate hikes from the Federal Reserve.
URL: https://financedigest.com/dollar-gains-as-wall-street-retreats-on-future-fed-hikeshtml

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By Pete Schroeder

WASHINGTON (Reuters) – U.S. stocks retreated on Thursday after a solid opening, while the [dollar gained as investors prepared for future rate hikes](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May") from the Federal Reserve.

All three major U.S. stock indexes [ended lower](https://www.financedigest.com/wall-street-ends-lower-as-bond-yields-jump-on-growth-concerns.html "Wall Street ends lower as bond yields jump on growth concerns"), having been whipsawed by uncertainty in recent days, marked by wide fluctuations and heightened volatility. The Dow Jones [Industrial Average](https://www.financedigest.com/average-annual-uk-grocery-bill-highest-since-at-least-2008-industry-data.html "Average annual UK grocery bill highest since at least 2008 -industry data") 0.02%, the S&P 500 lost 0.54% and the Nasdaq Composite fell 1.4%. \[.N/C\]

The MSCI [world equity](https://www.financedigest.com/world-equities-fall-u-s-treasury-yields-rise-after-hawkish-fed.html "World equities fall, U.S. Treasury yields rise after hawkish Fed") index, which tracks shares in 45 nations, fell 0.94%.

Markets opened [higher as new data](https://www.financedigest.com/dollar-advances-as-strong-u-s-data-backs-higher-rates-backdrop.html "Dollar advances as strong U.S. data backs higher rates backdrop") showed the U.S. economy accelerated in the fourth quarter, growing 6.9% – the [fastest rate since](https://www.financedigest.com/sentiment-in-uk-finance-falls-at-fastest-pace-since-2019-survey.html "Sentiment in UK finance falls at fastest pace since 2019, survey") 1984.

But, as has been the case most of the week, [gains were pared as investors processed how strong economic growth might inform the Fed’s](https://www.financedigest.com/asian-shares-gain-as-fears-about-rapid-fed-hikes-bank-crisis-fade.html "Asian shares gain as fears about rapid Fed hikes, bank crisis fade") thinking. Chairman Jerome Powell indicated at a Wednesday news conference that inflation remained higher than the [central bank](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") would like and supply chain issues could persist.

Our new base case for six hikes this [year poses challenges to our bullish outlook](https://www.financedigest.com/2017-cfo-outlook-top-priorities-as-new-year-gets-underway.html "2017 CFO Outlook: Top Priorities as New Year Gets Underway") for U.S. equities. However, it is not sufficient to derail it on a standalone basis if earnings [growth remains](https://www.financedigest.com/euro-zone-credit-growth-remains-brisk-despite-gloomy-outlook.html "Euro zone credit growth remains brisk despite gloomy outlook") strong, in our view,” BNP Paribas analysts wrote in a note.

DOLLAR BUILDS

However, the prospect of faster or larger U.S. interest rate hikes helped [push the dollar to its highest levels since July](https://www.financedigest.com/in-renewed-push-spain-to-tender-eu-funds-for-evs-batteries-in-july.html "In renewed push, Spain to tender EU funds for EVs, batteries in July") 2020.

In its latest policy update on Wednesday, the [Fed indicated it was likely to raise rates](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike") in March, as widely expected, and reaffirmed plans to end its pandemic-era bond purchases that month before launching a significant reduction in its asset holdings.

The dollar index, which measures the greenback’s value against other [major 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"), climbed 0.8%, its biggest single-day gain in more than two months.

The outlook for aggressive [rate hikes](https://www.financedigest.com/dollar-falls-after-fed-raises-rates-forecasts-future-hike.html "Dollar falls after Fed raises rates, forecasts future hike") has led to a major reset globally, said Ed Moya, senior market analyst at OANDA.

You just don’t know how far the [Fed is going to go because we don’t know exactly when inflation](https://www.financedigest.com/wall-st-seen-steady-ahead-of-inflation-data-fed-later-in-week.html "Wall St seen steady ahead of inflation data, Fed later in week") will really peak,” he said. While there is optimism that inflation will subside by midyear, it could get worse and lead to more aggressive Fed action, he said, adding, “you got a [little bit more left in this dollar](https://www.financedigest.com/stocks-dollar-little-changed-as-inflation-data-sends-mixed-signals.html "Stocks, dollar little changed as inflation data sends mixed signals") move.

The [dollar’s gain was gold’s](https://www.financedigest.com/stocks-and-gold-cheer-u-s-inflation-picture-while-dollar-slides.html "Stocks and gold cheer U.S. inflation picture, while dollar slides") loss, as the precious metal fell over 1% to more than a two-week low. [Spot gold prices](https://www.financedigest.com/spot-prices-up-on-less-solar-rising-french-demand.html "Spot prices up on less solar, rising French demand") fell 1.24% to $1,795.50 an ounce.

[Expectations of Fed](https://www.financedigest.com/dollar-set-for-weekly-loss-amid-expectations-fed-will-slow-hikes.html "Dollar set for weekly loss amid expectations Fed will slow hikes") tightening sent the policy-sensitive U.S. two-year yield to an intraday high of 1.208%, a level last reached in February 2020, before ending at 1.1902%.

The benchmark 10-year yield [slipped to 1.8101% after hitting](https://www.financedigest.com/uk-midcaps-slip-as-inflation-hits-3-decade-high-tesco-slides.html "UK midcaps slip as inflation hits 3-decade high; Tesco slides") a high of 1.88% on Wednesday.

Investors expect the speed at which the Fed tightens policy to be the major determinant of risk sentiment in the coming months, although the bank has said how quickly it hikes will depend on economic [data and especially inflation](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data").

Persistent tension between Russia and Ukraine had pushed [oil prices](https://www.financedigest.com/shares-fall-with-oil-prices-amid-concerns-about-u-s-fed-rate-hikes.html "Shares fall with oil prices amid concerns about U.S. Fed rate hikes") to seven-year highs earlier in the week, but prices fell a touch on Thursday.

Brent crude fell 0.2% to $89.81 a barrel. U.S. crude was down 0.3% to $87.08 per barrel.

[Russia said on Thursday it was clear the United States was not willing to address its main security concerns in their standoff over Ukraine](https://www.financedigest.com/russia-promises-to-scale-down-operations-in-northern-ukraine.html "Russia promises to scale down operations in northern Ukraine"), but both sides kept the door open to further dialogue.

(Editing by Robert Birsel, Catherine Evans, Jonathan Oatis and Marguerita Choy)


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