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Dollar gains as Wall Street retreats on future Fed hikes

EconomyJan 27, 2022 09:00PM ET
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2/2 © Reuters. Passersby wearing protective face masks walk past a stock quotation board, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan January 25, 2022. REUTERS/Issei Kato 2/2

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 from the Federal Reserve.

All three major U.S. stock indexes ended lower, having been whipsawed by uncertainty in recent days, marked by wide fluctuations and heightened volatility. The Dow Jones Industrial Average 0.02%, the S&P 500 lost 0.54% and the Nasdaq Composite fell 1.4%. [.N/C]

The MSCI world equity index, which tracks shares in 45 nations, fell 0.94%.

Markets opened higher as new data showed the U.S. economy accelerated in the fourth quarter, growing 6.9% - the fastest rate since 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 thinking. Chairman Jerome Powell indicated at a Wednesday news conference that inflation remained higher than the central bank would like and supply chain issues could persist.

"Our new base case for six hikes this year poses challenges to our bullish outlook for U.S. equities. However, it is not sufficient to derail it on a standalone basis if earnings growth remains strong, in our view," BNP Paribas (OTC:BNPQY) 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 2020.

In its latest policy update on Wednesday, the Fed indicated it was likely to raise rates 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, climbed 0.8%, its biggest single-day gain in more than two months.

The outlook for aggressive rate hikes 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 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 move."

The dollar's gain was gold's loss, as the precious metal fell over 1% to more than a two-week low. Spot gold prices fell 1.24% to $1,795.50 an ounce.

Expectations of Fed 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 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.

Persistent tension between Russia and Ukraine had pushed oil prices 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, but both sides kept the door open to further dialogue.

Dollar gains as Wall Street retreats on future Fed hikes
 

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Comments (16)
T Li
T Li Jan 28, 2022 12:55AM ET
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People really thought playing stocks is a fair moneymaking game, it is basically a blackjack in a larger scale. You will never be able to make money from the host in a long run
Jan 27, 2022 5:18PM ET
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Increased property taxes, print fiat money, increased gasoline tax all on rhe backs of the middle working class to pay for the social entitlement programs and for the fed to keep printing phony baloney fiat junk Anyrhing to keep this house of cards
Steffen vdm
Steffen vdm Jan 27, 2022 1:36PM ET
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What happened to the "priced in" and "transitionary" baloney?
JongUn Kim
JongUn_Kim Jan 27, 2022 8:03AM ET
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Only tone..
Gcj Rentals
Gcj Rentals Jan 27, 2022 6:36AM ET
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we knew all of this lol... nothing has changed..
jason xx
jason xx Jan 27, 2022 6:03AM ET
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Is Jpow and the rest of the FED net short or net long? That's really all they need to tell us and we cab figure the rest out from there.
Invests Never
Invests Never Jan 27, 2022 4:50AM ET
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Stock floor?
Samer Diab
Samer Diab Jan 27, 2022 4:50AM ET
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stock floor in March
Luki Paijo
Luki Paijo Jan 27, 2022 1:53AM ET
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why gold is down. if inflation is up?
Show previous replies (4)
Mauricio V.
Mauricio V. Jan 27, 2022 1:53AM ET
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we are not in the 20 century.
jason xx
jason xx Jan 27, 2022 1:53AM ET
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Because everything is not that simple if it was we would all be rich.
John robinson
John robinson Jan 27, 2022 1:53AM ET
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simple explanation...not everything is a scam or a Fed plot...if inflation is spiking and Fed seen as sitting on their hands, gold price will go up...but everyone with half a brain can see that inflation is peaking and the Fed is acting...so risk of runaway inflation is quite low...
AIM Investor Journal
AIM_IJ Jan 27, 2022 1:53AM ET
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John robinson  "Inflation is peaking" - half the world is still under lockdown, leisure and travel industry completely decimated and squeeze on supplies is increasing. Gas and oil rising to new year highs has yet to feed through into general cost of living but when it does, the price of everything is affected. Tech and car manufacturers short on chips. As for retail, shipping container prices are still 6-7x the level they were a year ago and China are closing down factories whenever an outbreak occurs exacerbating global shortages.
John robinson
John robinson Jan 27, 2022 1:53AM ET
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AIM Investor Journal  I'll give you in writing that from March/April onwards inflation will start to decrease and end the year between 3-4% (US CPI)...aaa..it will stay above Fed target for longer...that's another discussion...
Bullish Market
Bullish Market Jan 27, 2022 1:47AM ET
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pull all your money from market asap to save it from manipulator Satan follower fund managers. They are going to burn the entire economy into ground. God help us!
Samer Diab
Samer Diab Jan 27, 2022 1:47AM ET
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I am long term. for me these r the times to buy as I never buy when the market is green
Jason Claude
Jason Claude Jan 27, 2022 1:47AM ET
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pulling out isn't actually the best option right now
jason xx
jason xx Jan 27, 2022 1:47AM ET
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Your name doesn't check out
Chris Hall
Chris Hall Jan 27, 2022 1:43AM ET
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and the great recession begins ... congrats fed you just wiped away 30 trillion from people and the market... let the great depression 2.0 begin! but this not 1929! this climate is way more violent and way more gentrified ! we are on the virge of a civil war already which already has begun socially and politically ... need not worry about Russia! U.S will crumble on its own
Trevor Roberts
LimitUp Jan 27, 2022 1:43AM ET
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You seem pretty optimistic to me
Invests Never
Invests Never Jan 27, 2022 1:43AM ET
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Great Recession? Oh. Another buzzword for mild recession.
jason xx
jason xx Jan 27, 2022 1:43AM ET
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Only people who don't have jobs are on the verge of civil war. No regular people care.
 
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