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Dollar Surges, Stocks Tumble as Fed Signals Slower Rate Cuts

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The US dollar reached a two-year high and global stock markets experienced a decline on Thursday following the Federal Reserve's indication of a more gradual reduction in interest rates next year to mitigate the risk of inflation resurgence. Although the Fed implemented a quarter-point rate cut on Wednesday, its projections for future cuts in 2025 were significantly lowered, signaling continued concerns about persistent inflation and the potential impact of Trump's economic policies on price pressures. Investors reacted to the perceived hawkish stance of the Fed, leading to a sell-off on Wall Street and a drop in European and Asian stocks. The dollar index surged 1.1%, reaching its highest point since November 2022.

The dollar hit a two-year high and global stocks fell on Thursday after the Federal Reserve indicated it would cut interest rates more slowly next year to guard against any renewed threat of inflation. The quarter-point reduction in interest rates the Fed delivered on Wednesday, at its final meeting before Donald Trump takes office next month, was overshadowed as officials trimmed projected cuts in 2025.

Many of the biggest winners in a powerful 2024 equities rally pulled back. In bond markets, the yield on the benchmark 10-year Treasury rose another 0.03 percentage points to 4.52 per cent. The rate-sensitive two-year yield was flat at 4.35 per cent after leaping 0.11 percentage points. Indications that US interest rates could remain higher for longer, sharpening the appeal of the dollar, hit Asian markets hard on Thursday. The Indian rupee fell to a record low of Rs85.1 against the dollar.

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