Global shares head for worst week in a month, while the dollar trades near 2-month highs as the Fed's shift spooks investors

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Global shares head for worst week in a month, while the dollar trades near 2-month highs as the Fed's shift spooks investors
A more-hawkish stance by the Federal Reserve has forced equity indexes off recent record highs and boosted the dollar.Kena Betancur/Getty Images
  • Global shares eased while the dollar rose as investors mulled over a more hawkish US rate outlook.
  • Gold headed for its biggest slide since February, pressured by rising bond yields and a firm dollar.
  • The dollar traded near its highest in two months, buoyed by a rise in Treasury yields.

Global shares on Friday headed for their steepest weekly drop in a month, while the dollar neared two-month highs, as investors began to prepare for an end to the Federal Reserve's multitrillion-dollar economic-support program.

The Fed met this week to discuss monetary policy and, in light of the resilience of the recovery in the US economy and the pickup in consumer inflation, indicated it might raise interest rates by the end of 2023, sooner than it originally expected.

This more-hawkish stance has forced equity indexes off recent record highs, boosted the dollar, and forced government bond yields up, as chances grow for the central bank to taper the vast asset-purchase program it put in place last year to keep borrowing rates low and protect the economy.

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Futures on the S&P 500 and the Dow Jones Industrial Average were flat Friday, while those on the Nasdaq 100 rose 0.2%, suggesting tech stocks might get a lift when trading starts later in the day.

The MSCI All-World index of global shares was down 0.4% on the day, heading for a 0.64% decline this week, the largest in percentage terms in a month.

"Investors have been digesting the latest statements from the US central bank, which surprised markets with a far more hawkish stance than expected," the AXI strategist Milan Cutkovic said.

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"While this hasn't led to a reversal in stock markets, it could limit further gains in the near-term as taper talks intensify," he said.

In Europe, the STOXX 600 index was last down 0.1%, echoing the modest weakness across the Asian market, where the Shanghai Composite closed flat and Tokyo's Nikkei lost 0.2%.

The dollar hovered near its highest in about two months, buoyed by an influx of capital from investors who have ditched assets that tend not to perform well when US rates rise, such as emerging-market currencies and some commodities.

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"The world's reserve currency is heading for its best week in nearly nine months after the surprise change in tone from the Federal Reserve on Wednesday continues to rattle markets and fundamental positioning," Lukman Otunuga at FXTM said.

"A market accustomed to liquidity on tap from a 'patient' Fed has had to face the reality that a tightening is coming far sooner than it previously thought," he said.

Yields on the five-year US Treasury note, which move inversely to prices, were down 2 basis points on the day, at about 0.858%.

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In cryptocurrencies, bitcoin was down 3.7% at about $37,840, while ether was down 4% at about $2,340, in line with the sell-off across other risk assets.

The gold price was heading for its largest weekly loss since early February, on track for a drop of 4%, thanks in part to the strength of the dollar, which makes bullion less appealing for non-US investors to hold.

"The most important driving force behind the price slide is the massive appreciation of the US dollar, which has gained more than 2 cents since the Fed's meeting on Wednesday," the Commerzbank analyst Carsten Fritsch wrote in a research note.

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Gold was last up about 1% at $1,792 an ounce, having recovered some of Thursday's 3% decline, which was the biggest one-day drop since January.

Other commodities also declined broadly, having been swept lower by the same dollar-related selling as gold. Lumber was set for a weekly drop of 15%, while copper was on track for a decline of 7.5% and palladium, which is used in autocatalysts for gasoline-powered vehicles, was heading for a fall of 7% on the week.

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