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Title: Stocks fall, dollar gains as U.S. inflation prompts 100 bps hike bets

Jul 14, 2022 04:31AM ET

By: AnalysisWatch

European stocks fell in early trading on Thursday and the dollar, considered a safe haven, rose after the latest inflation data from the US increased investor caution about interest rate hikes by the Federal Reserve.

Data released on Wednesday showed US consumer prices rose 9.1% year-on-year in June, up from 8.6% in May.

At the start of European trading, money markets were expecting a 54% chance of a full percentage point rate hike at the July meeting and a 46% chance of a 75 basis point increase.

Asian stocks remained at two-year lows and European indices opened lower. At 0735 GMT, both the European STOXX 600 and London's FTSE 100 were down 0.2%.

Cheng said riskier assets will be the "collateral damage" in the Fed's attempts to rein in inflation.

The dollar index, which measures the dollar's performance against a basket of currencies, rose 0.2% to 108.43, while the greenback gained 1.1% against the yen, its highest level since 1998.

The British pound lost 0.2 % to $1.1865. In the first vote to succeed Boris Johnson as Conservative party leader, former finance minister Rishi Sunak received the most support from Conservative MPs.

The euro fell 0.3% to $1.00325 after sliding below $1 for the first time since 2002 on Wednesday.

The euro is under pressure as the European Central Bank lags behind the US Federal Reserve in ending its ultra-loose monetary policy of the past decade and as the eurozone's dependence on Russian gas poses economic risks.

The benchmark 10-year German government bond yield rose 8 basis points to 1.231%.

The 10-year US yield rose about 7 basis points to 2.9817%. According to Deutsche Bank (ETR:DBKGn), the 2- and 10-year parts of the government bond yield curve are more inverted than ever before this cycle.

An inversion of the yield curve - that is, when interest rates are higher for short maturities than for longer ones - is commonly seen as an indicator that markets are expecting a recession.

Oil prices fell as traders assumed that a large US interest rate hike could reduce demand for crude oil.

Overnight, the Monetary Authority of Singapore and the Bangko Sentral ng Pilipinas surprised markets with an out-of-cycle tightening of monetary policy.

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