Stocks Slide and Dollar Gains on Hot US Inflation Data

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On Friday, the U.S. released its latest consumer price index (CPI) data, showing underlying inflation pressures are still strong. The main index rose 8.6% over the year, and when food and energy prices are excluded, the reading is even higher. Economists surveyed by Dow Jones had expected an increase of 8.3% in the main index and a 5.9% increase in the core index. However, the news surprised investors and sent stocks falling on Wall Street and across Europe.

The stock market is struggling to recover from Thursday’s gloomy reading. The Dow Jones Industrial Average fell below 30000 for the first time since January 2021, and all three major indexes fell by more than 2%. Rising interest rates and a worrying inflation picture have dampened investors’ appetites for risk. The S&P 500 and tech-heavy Nasdaq Composite have retreated by about 5% and 6%, respectively. Earlier in the week, stocks rallied off the 2022 lows, but Friday’s report dampened investors’ confidence. Despite a positive report from the Federal Reserve’s Jerome Powell, stocks are now down nearly 19% from their record highs, with the S&P 500 closing even with its lowest point of the year.

The S&P 500 index fell nearly 3% on Monday, marking the worst single-day drop in a month. European and Asian benchmark indexes also ended lower, while oil prices fell to an 18-month low. Bitcoin plunged below $24,000, dropping to its lowest level this year. This selloff in stocks comes just as the Fed is set to release its latest economic projections. If the projections are right, the Fed could reassure investors by raising rates by 50 basis points in the next three meetings.

The rise in the consumer price index in the united states surprised investors. While the increase was much greater than expected, the data raised concerns that the Federal Get is about to tighten its monetary policy, which could send the economy into a steep downturn. Additionally, food and gas prices soared to record levels. Further, rental rates in many cities have topped the previous highs. Despite this, investors have not yet priced in the fact that the U.S. is experiencing the highest inflation rate in its history.

Fed officials may raise the key rate again this week. But some analysts are already calling for three quarters of a percentage point hike this week. While this is unusual, there is still a chance for the Fed to design a softer touchdown. Traders are still waiting to see what the Fed does next. However, it is possible that it will raise rates once again if the CPI data continues to come in stronger than expected.

Asia shares dropped across the board after the U.S. stock market plunged into a bear market. As a result, the U.S. Federal Reserve has been scrambling to contain inflation. Raising interest rates could slow the economy and risk a recession. In the meantime, stocks around the world have been weighing down the dollar. And as a result, the dollar is holding onto gains made overnight.

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