The dollar jumps and global stocks fall after the Federal Reserve signaled a slowdown in the pace of interest rate cuts

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The dollar hit a two-year high and global stocks fell on Thursday after the Federal Reserve (US central bank) indicated it would cut interest rates more slowly next year to protect against any renewed threat of inflation.

The quarter-point cut in interest rates offered by the Federal Reserve on Wednesday, at its final meeting before Donald Trump takes office next month, has been overshadowed as officials taper cuts expected in 2025.

Signs that the Fed remains concerned about persistent inflation — and the threat that Trump’s economic plans could add to price pressures — sent the dollar index, a measure of the US currency against six peers, up 1.1 percent to its highest level since November. 2022.

European and Asian stocks fell after a sharp sell-off on Wall Street on Wednesday, as investors felt shocked by the prospect of the Federal Reserve cutting borrowing costs less quickly.

The European Stoxx 600 index fell by 1 percent, and the FTSE 100 index fell by 1.1 percent.

“Markets were surprised by the Fed’s hawkish stance,” said Mitul Kotecha, head of emerging markets macro strategy at Barclays Bank in Singapore.

Concerns about inflation stabilizing above 2 percent have led Fed officials to expect cuts of just half a percentage point in 2025, down from the full rate in their last forecast in September.

In choppy trading late Wednesday, the S&P 500 closed down 3 percent, and the tech-heavy Nasdaq Composite index fell 3.6 percent. Many of the biggest winners in stocks’ strong rally in 2024 have pulled out.

In bond markets, the yield on the benchmark 10-year Treasury note rose another 0.03 percentage point to 4.52 percent. The two-year interest rate-sensitive yield settled at 4.35 percent after jumping 0.11 percentage points.

This indicates that US interest rates It could remain higher for longer, making the dollar more attractive, and hit Asian markets hard on Thursday.

The Indian rupee fell to a record level of 85.1 rupees against the dollar. The value of the Chinese renminbi and the Japanese yen fell sharply, with the South Korean won falling to its lowest level in fifteen years.

In stock markets, Australia’s S&P/ASX 200 index fell 1.7 percent, South Korea’s Kospi fell 1.9 percent, and India’s Sensex fell 1.2 percent.

Meanwhile, Japan’s currency-sensitive Nikkei 225 index fell 0.6 percent after the Bank of Japan opted. Keep rates constant Thursday.

“For Asia, which has suffered from relatively low yields and a weaker China, adding pressure to the region, (today’s declines) are the culmination of those factors,” said Scarlett Liu, a strategist at BNP Paribas.

Bitcoin, which fell more than 5 percent yesterday, recovered 1 percent to $101,300 per token on Thursday.

“Given the risk of a resurgence in inflation due to potential trade tariffs and a migration slowdown that eases pressure in the labor market, market expectations of just two additional cuts in 2025 now look reasonable,” wrote Jean Boivin, head of the BlackRock Investment Institute. , in a note.