The greenback has settled below 105.00 as risk sentiment started to improve
Wall Street stocks plunged along with global equities on Monday amid reports that US Federal Reserve could raise interest rates by as much as 0.75% this week to fight persistent inflation that touched 8.6% in May. The S&P 500 dropped 3.9% on Monday to a new low for the year, the Dow Jones gave up 2.8% and the tech-heavy Nasdaq Composite crumpled 4.7%, with risk-sensitive tech stocks leading the losses.
Following suit, Asian equity markets fell sharply on Tuesday on rising fears aggressive US interest rate hikes would push the economy into recession. MSCI’s broadest index of Asia-Pacific shares outside Japan gave up nearly 1%. The Nikkei 225 in Tokyo fell 1.32% after the data showed Japan’s April final industrial production came in at -1.5% versus the preliminary estimate of -1.3% m/m. Bucking the trend, China’s Shanghai Composite recovered from earlier losses to gain 1%.
In Europe, stocks opened higher on Tuesday as markets look for rebound after a major sell-off witnessed at the start of the week. The pan-European Stoxx 600 added 0.7% in early deals. On the data front, the UK unemployment rate rose slightly in the three months to April to 3.8% while German inflation accelerated to 7.9% year on year in May. In individual stocks, shares of Atos fell more than 11% on the news that CEO Rodolphe Belmer will step down after just several months at the helm.
Meanwhile, the USD index fell back from twenty-year highs seen around 105.30 at the start of the week. The greenback has settled below 105.00 as risk sentiment started to improve, with traders taking profit after rally. Still, the downside potential for the dollar looks limited ahead of the Fed’s meeting that concludes on Wednesday. A hawkish hike by the central bank would push the buck to fresh multi-year peaks.