# Dollar jumps, U.S. stocks buck global rally
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-01-04
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Dollar Soars as Oil Prices Sink: Weekly Analysis of U.S.
Meta Description: Get the latest updates on the dollar, oil prices, US stocks, and global equities in this macro-packed week with insights on US interest rates and market trends.
URL: https://financedigest.com/dollar-jumps-u-s-stocks-buck-global-rallyhtml

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By Amanda Cooper and Koh Gui Qing

LONDON/NEW YORK (Reuters) -The dollar jumped on Tuesday as oil prices sank, while U.S. [stocks bucked a global equities rally](https://www.financedigest.com/asian-stocks-rally-as-bank-jitters-calm-alibaba-lifts-mood.html "Asian stocks rally as bank jitters calm, Alibaba lifts mood") in a macro-packed week that could offer a steer on when and where U.S. interest [rates might peak](https://www.financedigest.com/bank-of-england-raises-rates-to-3-5-says-inflation-has-peaked.html "Bank of England raises rates to 3.5%, says inflation has peaked").

The MSCI All-World index fell 0.2%, dragged by losses in U.S. stocks. The Dow Jones Industrial Average ended [little changed](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"), the S&P 500 dropped 0.4%, and the Nasdaq Composite lost 0.76%.

Losses in U.S. stocks were led by a 12.2% tumble in electric-vehicle maker [Tesla after it missed Wall Street estimates for quarterly deliveries](https://www.financedigest.com/tesla-posts-record-quarterly-deliveries-after-price-cuts-up-4-from-q4.html "Tesla posts record quarterly deliveries after price cuts, up 4% from Q4"). IPhone maker Apple Inc dropped 3.7% to its lowest since June 2021 following a [rating downgrade due to production cuts](https://www.financedigest.com/oil-gains-as-russian-supply-cuts-temper-concerns-over-rate-hikes-high-stocks.html "Oil gains as Russian supply cuts temper concerns over rate hikes, high stocks") in China.

The U.S. [dollar firmed ahead](https://www.financedigest.com/shares-steady-dollar-gains-ahead-of-u-s-inflation-data.html "Shares steady, dollar gains ahead of U.S. inflation data") of Wednesday’s release of the minutes from the Federal Reserve’s last meeting, with expectations they will signal more policy tightening is in store.

A higher dollar walloped oil prices, which also took a beating from concerns about slowing global economic growth, especially after data showed China’s [factory activity](https://www.financedigest.com/global-factory-activity-weakens-as-demand-falters.html "Global factory activity weakens as demand falters") shrank in December.

We expect the December FOMC [minutes to shed additional light on Fed](https://www.financedigest.com/dollar-jumps-euro-dips-before-fed-minutes.html "Dollar jumps, euro dips before Fed minutes") officials’ policy views for 2023. Note that at the meeting, the Committee signalled broad expectations for a substantially [higher terminal rate](https://www.financedigest.com/powells-warning-on-higher-u-s-rates-pushes-dollar-to-3-mth-high.html "Powell’s warning on higher U.S. rates pushes dollar to 3-mth high") this year,” analysts at TD Securities said in a note.

The [dollar index jumped](https://www.financedigest.com/dollar-jumps-as-powell-flags-higher-terminal-rate.html "Dollar jumps as Powell flags higher terminal rate") 0.94% to 104.64. \[USD/\]

The euro was the worst-performing currency against the dollar, falling by the most since late September, after German regional inflation data showed consumer price pressures eased sharply in December, thanks in large part to government measures to contain natural gas [bills for households](https://www.financedigest.com/44-of-uk-households-are-worried-theyll-have-to-foot-the-bill-for-net-zero.html "44% of UK Households are Worried They’ll Have to Foot the Bill for Net Zero") and businesses.

Data on U.S. payrolls this week is expected to show the labour market remains tight, while EU consumer prices could show some slowdown in [inflation](https://www.financedigest.com/oil-prices-dip-on-u-s-crude-reserve-release-inflation-pressure.html "Oil prices dip on U.S. crude reserve release, inflation pressure") as energy prices ease.

Energy base effects will bring about a sizeable reduction in inflation in the major economies in 2023, but stickiness in core components, much of this stemming from tight labour markets, will prevent an early dovish policy ‘pivot’ by central [banks,” analysts at NatWest Markets](https://www.financedigest.com/market-stress-indicators-react-sharply-after-u-s-bank-failures.html "Market stress indicators react sharply after U.S. bank failures") wrote in a note.

They expect interest rates to top out at 5% in the United States, 2.25% in the EU and 4.5% in [Britain and to stay there for the entire year](https://www.financedigest.com/2043-the-year-britain-will-turn-cashless.html "2043: The year Britain will turn cashless"). Markets, on the other hand, are pricing in rate cuts for late 2023, with [fed fund futures](https://www.financedigest.com/us-stock-futures-bonds-rally-as-markets-flirt-with-fed-pause.html "US stock futures, bonds rally as markets flirt with Fed pause") implying a range of 4.25% to 4.5% by December.

The [thing that makes me nervous about this year](https://www.financedigest.com/2017-the-year-of-the-internet-of-some-things.html "2017 – The year of the Internet of ‘SOME’ Things") is that we still do not know the full impact of the very significant monetary tightening that’s taken place across the advanced world,” Berenberg Senior Economist Kallum Pickering said.

“It takes a good year, or 18 months, for the full effect to kick in,” he said.

Central [banks have expressed concern about rising](https://www.financedigest.com/stocks-rise-after-bank-sale-fuels-investor-risk-appetite.html "Stocks rise after bank sale fuels investor risk appetite") wages, even as consumers have struggled to keep up with the soaring cost of living and companies are running out of room to protect their profitability by raising their own prices.

However, said Pickering, the labour market tends to lag the broader economy by some time, meaning there is a risk that [central banks](https://www.financedigest.com/stock-pickers-reckon-its-time-to-move-on-from-central-banks.html "Stock pickers reckon it’s time to move on from central banks") could be raising interest rates by more than the economy can withstand.

What [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 inducing is essentially excess cyclicality, which is – they overstimulated in 2021 and triggered an inflationary boom and then overtightened in 2022 and triggered a disinflationary recession. It’s exactly the opposite of what you want central banks to do,” he said.

[EUROPEAN SHARES](https://www.financedigest.com/european-shares-hit-nine-month-high-dollar-wobbles-after-powell-remarks.html "European shares hit nine month high, dollar wobbles after Powell remarks") RALLY

On the markets, [European shares rose thanks to gains](https://www.financedigest.com/european-shares-set-for-weekly-gain-on-u-s-inflation-outlook.html "European shares set for weekly gain on U.S. inflation outlook") in classic defensive sectors, such as healthcare and food and beverages. Drugmakers Novo Nordisk, Astrazeneca and Roche were among the biggest positive weights on the STOXX 600, along with Nestle

The STOXX, which lost 13% in 2022, rose 1.2%. The FTSE 100, the only major European index not to trade on Monday, rose 1.4%.

Markets have for a while priced in an eventual U.S. easing, but they were badly wrong-footed by the Bank of Japan’s shock upward shift in its ceiling for [bond yields](https://www.financedigest.com/wall-st-stocks-fall-bond-yields-rise-as-china-drops-quarantine-rule.html "Wall St stocks fall, bond yields rise as China drops quarantine rule").

The BOJ is now considering raising its [inflation forecasts in January to show price growth close to its 2% target](https://www.financedigest.com/the-mouse-that-roared-new-zealand-and-the-worlds-2-inflation-target.html "The mouse that roared: New Zealand and the world’s 2% inflation target") in fiscal 2023 and 2024, according to the Nikkei.

Such a move at its [next policy](https://www.financedigest.com/yen-trims-gains-as-possible-next-boj-governor-says-current-policy-appropriate.html "Yen trims gains as possible next BOJ governor says current policy appropriate") meeting on Jan. 17-18 would only add to speculation of an end to ultra-loose policy, which has essentially acted as a floor for [bond yields globally](https://www.financedigest.com/global-equities-gain-as-rising-bond-yields-pressure-gold.html "Global equities gain, as rising bond yields pressure gold").

The policy shift has boosted the yen across the board, with the [dollar losing 5% in December and the euro](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") 2.3%.

The yen took a breather on Tuesday, [easing 0.3% against the dollar](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") to 130.895. The [dollar earlier touched a six-month low of 129.52 yen](https://www.financedigest.com/yen-sinks-as-rates-outlook-diverges-nz-dollar-tumbles.html "Yen sinks as rates outlook diverges; NZ dollar tumbles").

[Oil succumbed to the strength of the dollar](https://www.financedigest.com/oil-slumps-on-economic-data-stronger-u-s-dollar.html "Oil slumps on economic data, stronger U.S. dollar"), and concern about demand in China, the world’s second-largest economy, added to the downward momentum.

A batch of surveys has shown China’s factory activity shrank at the sharpest pace in nearly three years as [COVID infections swept through production](https://www.financedigest.com/roche-flags-2023-earnings-decline-on-slump-in-covid-products.html "Roche flags 2023 earnings decline on slump in COVID products") lines.

“China is entering the most dangerous weeks of the pandemic,” warned analysts at Capital Economics.

Brent crude lost 4.2% to settle at $82.10 a barrel. \[O/R\]

(Reporting by Koh Gui Qing in New York and Amanda Cooper in LondonAdditional reporting by Wayne Cole in SydneyEditing by Andrea Ricci and Matthew Lewis)


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