LONDON – The US dollar hit 20-year highs and world stocks fell towards their lowest in over a year on Friday as markets anticipated more US interest rate rises.
The US currency was heading for its fifth straight week of gains after the Federal Reserve raised rates by 50 basis points this week. The market is pricing in a more than 90 percent chance of a 75 bps hike in June, according to Refinitiv data.
US payrolls data due later on Friday will help traders gauge the strength of the US economy. Economists polled by Reuters predicted the data would show the United States created 391,000 new jobs in April, versus 431,000 a month earlier.
"The trend is still for a strong and very tight labour market, which is feeding into wage increases and is an issue for inflation longer term," said Gergely Majoros, a member of the investment committee at asset manager Carmignac. This made it hard for the Fed keep prices stable, he added.
"Job creation is still too hot for the Fed to achieve its mandate."
The dollar hit a 20-year high of 104.06 against an index of currencies and gained 0.19 percent to 130.42 yen , also close to its highest in 20 years.
The euro fell 0.38 percent to $1.0499, near recent five-year lows.
Sterling fell to its lowest against the dollar in nearly two years after dropping 2.2 percent on Thursday.
The Bank of England raised rates by 25 basis points as expected, but two policy makers expressed caution about rushing into future rate hikes.
MSCI's world equity index fell 0.52 percent, towards its lowest since Feb 2021.
US stock index futures dropped 0.6 percent after the Dow Jones Industrial Averageand the S&P 500 both slid more than 3 percent overnight, and the Nasdaq Composite shed 4.99 percent in its biggest single-day plunge since June 2020.
European stocks fell more than 1 percent to their lowest since mid-March and were heading towards their worst week in two months. Britain's FTSE dropped 0.8 percent.
"We are still left with an environment where growth is slowing and we are starting to see evidence that sectors such as US housing are slowing, global PMIs are showing the toll and accumulated savings are getting spent down," said Grace Peters, EMEA head of investment strategy at JPMorgan Private Bank.
"But based on the latest US data, we are comfortable with tracking for inflation peaking in Q2."
US yields are rising on expectations of a fast pace of rate hikes. The yield on US 10-year notes was last 3.063 percent after crossing 3.1 percent overnight for the first time since November 2018.
Germany's 10-year government bond yield rose to 1.057 percent, its highest since 2014.
MSCI's broadest index of Asia-Pacific shares outside Japan shed 2.87 percent to its lowest level since March 16.
The benchmark is down 4 percent from last Friday's close, which would be its worst week since mid-March. Japan's Nikkei bucked the trend, rising 0.69 percent on its return from a three-day holiday.
Oil prices shrugged off concerns about global economic growth as worries about tightening supply underpinned prices ahead of the European Union's impending embargo on Russian oil.
Brent futures rose 0.29 percent to $111.78 a barrel. US crude rose 0.23 percent to $108.51 a barrel.
Gold ticked down 0.12 percent to $1874.7 an ounce.