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Stock bounce fades and the dollar gains as growth fears return

May 18, 2022 07:56AM ET

By: Analysis Watch

On Wednesday, the rally in equities was shaken by worries about the outlook for economic growth and rising inflation, with 9% inflation in the UK highlighting how much interest rates could rise.

European shares were mostly lower, and Wall Street futures pointed to a weaker open.

Many analysts described this week's sharp rise as a short-term bounce, as usually happens in a long-term downtrend in equities.

Few are willing to predict an end to the sell-off after the first five months of the year, which have been very tough for risk assets given the high macroeconomic uncertainty.

In currency markets, sterling was the big loser, losing as much as 1% to $1.2373 after UK consumer price inflation hit 9% in April, a 40-year high and roughly in line with analysts' expectations.

Sterling rose sharply this week, and part of Wednesday's decline was due to profit-taking.

British inflation is currently the highest of the major economies, but prices are rising rapidly around the world, forcing central banks to raise interest rates even as the pace of economic growth slows.

The US dollar rose 0.3% to 103.62 after Thursday's big drop and headed back to a two-year high reached last week, while the euro fell by a similar amount to $1.0513.

Wednesday's data showed Japan's economy contracted less than expected in the first quarter.

Investors predicted a 50 basis point rise in US interest rates in June and July and believe the Fed's benchmark rate will reach 3 rly next year.

This week, commodities rose along with stocks, though most prices are below recent highs.

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