A stronger dollar and rising yields: How the Fed’s rate hike could hit global markets

A stronger dollar and rising yields: How the Fed’s rate hike could hit global markets. "It does put pressure on Japan to continue to follow suit and raise interest rates as well," he said. watch nowVIDEO3:4603:46Fed should hold off on further rate hikes, says Moody's Analytics' Mark ZandiSquawk Box AsiaNavin Saigal, BlackRock's head of global fixed income for Asia Pacific, echoed that the market's hawkish interpretation of the Fed meeting "may put some pressure on Asian currencies and bond markets in the near term.

What happened

Higher U. S. rates could also keep global bond yields elevated and weigh on equity valuations and economic growth. Higher rates-led rise in Treasury yields also raises prospects of capital outflows from other markets into the U. S. rates are only one side of the equation for global markets. Markets are pricing in more than an 80% chance that the central bank will hold interest rates steady on Thursday, according to LSEG data, but a hike of at least 25 basis points is widely anticipated at its next meeting in November.

Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKey PointsThe Fed should have hiked rates by half percentage point rather than a quarter, Jeff Gundlach told CNBC. Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKey PointsConsumers are facing a double whammy of rising oil prices and Treasury yields amid the U. S. tightening cycle could mean a stronger dollar, greater pressure on currencies elsewhere.

The wider picture

The Fed on Wednesday raised interest rates for the first time since July 2023 and indicated another hike could follow, as part of its effort aimed at combating inflation that has been stoked by spiraling oil prices, among other factors. S. tightening cycle could mean a stronger dollar, greater pressure on currencies elsewhere and less room for other central banks to ease monetary policy, experts told CNBC. The Fed's hike and signals about another one are putting some upward pressure on the dollar and downward pressure on other currencies, Mark Zandi, chief economist at Moody's Analytics, told CNBC.

S. rates support the greenback while putting pressure on other currencies, as major assets such as oil and natural gas as well as agricultural commodities are priced in dollars. That means domestic conditions could ultimately outweigh pressure to mechanically follow the Fed, even as a stronger dollar reduces policymakers' room to ease. Market impactFor markets, a prolonged period of higher rates also raises the hurdle for equities and other risk assets. Liz Ann Sonders, chief investment strategist at Charles Schwab, said the level of yields may matter less than the speed and orderliness of their rise.

S. growth should continue spurring global activity, trade flows and corporate fundamentals across Asia, even as higher rates create near-term pressure.

What has been reported

Grogan | CNBCThe Bank of England is widely expected to leave interest rates unchanged on Thursday, despite inflation rising well above its 2% target. Last week, the European Central Bank announced its second rate hike this year, after raising rates in June for the first time in three years. Although the inflation increase was "unlikely to convince the Bank of England to hike interest rates just yet," it could raise fresh concerns about the outlook for inflation among policymakers, said Scott Gardner, an investment strategist at J.

DJIFollow your favorite stocksCREATE FREE ACCOUNTwatch nowVIDEO4:4304:43Jeffrey Gundlach: Worry the inflation problem isn't being fully respectedClosing BellThe Federal Reserve should have hiked rates by more on Wednesday instead of a just a quarter point, according to Jeff Gundlach, founder of DoubleLine. Gundlach, one of the most prominent bond investors, said a half-point hike would have provided the market with a "truing up" to the Fed funds rates. 2-year Treasury, 1-dayTo be sure, Gundlach said he has previously advocated for larger rate hikes than the Fed has implemented.

Mortgage rates have trended higher since the war broke out, following longer-term bond yields. Rate hikes from the Federal Reserve could provide another reason for firms to not expand their headcounts, Bachaud said.

What happens next

How rising bond yields impact American consumersHow rising bond yields impact American consumersCloseThe 10-year Treasury yield has surpassed 5% and reached its highest level since 2007. Skip NavigationMarketsBusinessInvestingTechPolitics & PolicyVideoWatchlistInvesting ClubPROLivestreamMenuKey PointsA renewed U. Pressuring currenciesOne of the most immediate channels through which a tighter Fed policy travels around the world is the dollar. A weaker yen could add to the case for further tightening by the Bank of Japan, he elaborated. That comes as oil prices have already risen sharply due to the Middle East conflict, risking higher energy costs, weaker currencies and elevated interest rates combined for some economies.

The European Central Bank raised rates by 25 basis points last week, while J. Morgan Asset Management expects the Bank of Japan to increase rates by a quarter point this week.

The report has been compiled by The Daily Waves using information reported across cnbc.com, marketwatch.com. Details are presented according to the information available at the time of publication and may change as authorities, organisers or other relevant parties provide updates.