Mounting inflationary concerns raised speculation that the Fed may be forced to tighten its monetary policy faster than expected, and pushed the US dollar to rally against all of the major currencies expect for the Japanese Yen. As a result, all of the commodity currencies slide against the greenback amid surging oil prices, with the New Zealand dollar taking the biggest plunge as investors limited their holdings of high yielding currencies. The US dollar picked up remarkable gains against the European currencies as the British Pound and Euro dipped to 1.954 and 1.539, respectively, with the Swiss franc following behind as the pair traded in the 1.054 range.
The stock markets tumbled lower as oil surged to fresh record high of $123.53, with shares struggling to hold on as investors grew weary of the downside economic risks. As a result, the DJIA plunged 206.48 points to hold off at 12,814.35 points, with 24 of the 30 components declining. The broader S&P500 fell 25.69 points to 1,392.57 points, with 169 stocks falling to a new 52 week low.
Sluggish performance in the stock markets spurred increased demands for US Treasuries, and pushed risk adverse investors into the safe haven of risk free bonds. As a result, the benchmark 10-Year yield dropped to 3.850 percent from 3.924, while the 2-Year yield plunged to 2.316 percent from 2.393.
Looking ahead, the rate decision by the Bank of England and by the European Central Bank will hold major event risk for the currency markets, and expect heightened volatility to follow as we forecast the BoE and ECB to hold rates steady at 5.00 percent and 4.00 percent, respectively. The Bank of England is schedule to release their decision at 11:00GMT with the ECB’s decision coming in at 11:45 GMT, and do not expect major movements in the market prior to the release.