The threat of a global trade war pushed the US dollar to its lowest in over a month yesterday and dragged benchmark equity indexes in the United States and Europe into the red, a day after the Federal Reserve raised interest rates as expected.
It was the dollar’s third decline in four sessions and helped sterling climb to a six-week high after a Bank of England policy meeting laid the foundations for another British rate increase in the coming months.
The Fed raised its key rate by 25 basis points to a range of 1.50 per cent to 1.75 per cent on Wednesday and flagged at least two more increases for the year, short of the three that some economists had been predicting.
China also nudged up its borrowing costs overnight, as Beijing braced for fresh tariffs to be announced by US President Donald Trump on Chinese imports worth as much as $60 billion.
Those jitters, plus weaker-than-expected German business confidence data, caused European shares to fall 1.7 per cent to a two-week low.
Selling pressure intensified in early trading on Wall Street.
The Dow Jones Industrial Average fell 340.32 points, or 1.38 per cent, to 24,341.99, the S&P 500 lost 34.8 points, or 1.28 per cent, to 2,677.13 and the Nasdaq Composite dropped 101.62 points, or 1.38 per cent, to 7,243.67.
Shares in US tech giant Facebook 1.6 per cent in morning trading, in the wake of news Chief Executive Mark Zuckerberg apologised for a “major breach of trust” over how it had handled data belonging to 50 million users.
In the currency market, sterling hit a peak of $1.4216, its highest in more than a month.
The Bank of England kept rates steady yesterday but two of its policymakers unexpectedly voted for an immediate rate rise, in a statement that will boost investors’ confidence that borrowing costs will rise in May.
Bond yields – which move inversely to price – fell broadly. Borrowing costs on 30-year German debt hit their lowest level of the year.
Benchmark 10-year notes last rose 24/32 in price to yield 2.819 per cent, from 2.907 per cent late on Wednesday.
World shares broadly retreated, with MSCI’s gauge of stocks across the globe shedding 0.66 per cent. Japan’s Nikkei rose 1.0 per cent.
China said it hoped to hold talks with the United States to achieve a “win-win” solution on trade, Foreign Ministry spokeswoman Hua Chunying said in Beijing.
Concern about a trade war between the world’s two largest economies also put commodity markets on guard.
Yesterday, United States crude fell 1.14 per cent to $64.43 per barrel and Brent was last at $68.90, down 0.82 per cent on the day.