Fed hawkishness paved the way for a soaring dollar that's beating down other currencies. Here's what to know.
Friday eve on a short week? "Good morning" goes without saying. Phil Rosen here, writing to you from New York City.
Since money is always top of mind for us markets people, today I wanted to check in on how the U.S. dollar's doing.
Like Jack's beanstalk or thermometers in California, the greenback has shot upwards in a relatively short span of time.
The currency hit its highest level in two decades, and the dollar index has climbed 15% this year.
That puts it on track for its biggest annual leap since 1981.
Let's find out why.
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1. As of this week, the dollar is up 13% against the euro, 15% against the British pound, and 20% against Japan's yen, according to Bloomberg data.
Europe's energy crisis, Russia's war on Ukraine, and fears of a global recession have sent traders to the safe-haven dollar.
But perhaps most importantly, we can look to the Fed as the reason for the dramatic surge.
The central bank has hiked interest rates at the most aggressive pace since the 1980s in an attempt to stem high inflation, and at least one more outsized hike could come this month.
The Fed has raised rates by 2.25 percentage points since March, with the target range now standing at between 2.25% and 2.5%.
Yesterday, Fed Reserve Vice Chair Lael Brainard said restrictive policy measures will be in place for "as long as it takes" — meaning no rate cuts anytime soon.
Jan Szilagyi, CEO of investment research firm Toggle AI, told me investors have flocked to the greenback because markets recognize policymakers are behind in their inflation battle.
"The U.S. currency tends to increase in value against other currencies when the U.S. economy is extremely weak — often a time of heightened risk aversion — or very strong," he explained.
It's worth noting that the dollar's strength has prompted particularly aggressive moves from China. It's up 8% against the yuan in 2022.
The dollar's relentless advance has sent China's foreign exchange reserves to the lowest point since 2018, Chinese government data revealed this week, as the value of its other assets declines.
At the same time, the People's Bank of China has moved to shield its currency from further declines as it nears the psychological threshold of 7 per dollar.
On Wednesday, Beijing imposed a stronger-than-expected reference rate for the yuan for the 11th day in a row.
It remains to be seen whether policy adjustments can save the falling yuan from the dual pressures of the hawkish Federal Reserve and China's COVID-19 lockdowns.
What do you think other central banks can do to boost their currencies against the dollar? Email prosen@insider.com or tweet @philrosenn.
In other news:
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2. U.S. stock futures were flat Thursday morning, after stocks climbed and the Nasdaq snapped a seven-session losing streak Wednesday. Meanwhile, the European Central Bank is expected to raise interest rates again and Fed chair Jerome Powell is slated to speak at the Cato Institute. Here are the latest market moves.
3. On the docket: Zscaler Inc., Sekisui House, DocuSign, and more, all reporting.
4. Morgan Stanley forecasted that stocks will fall at least another 13% before the end of the year. Some of the most "significant downward revisions to forward EPS forecasts we have seen in the past several cycles" are ahead, top strategist Mike Wilson said. But these three sectors offer the best chance at returns in the current market.
5. Russia is set to restrict retail investors from buying securities from "unfriendly" countries that have imposed sanctions. The Bank of Russia said more than 5 million investors had their holdings in foreign securities frozen, thanks to moves by the West. In October, brokerages will begin restricting access.
6. Kim Kardashian is launching a private equity firm with the former Carlyle partner that invested in Beats by Dre and Supreme. The celebrity's venture will be called SKKY Partners, and will invest in consumer and media businesses, the Wall Street Journal reported. Here's what you want to know.
7. France will restart a shuttered pipeline to send natural gas to an energy-strapped Germany. It can deliver about 2% of Germany's gas needs over the colder months, according to Reuters, which should bring at least some respite for Europe's largest economy as Russia continues to squeeze energy supplies.
8. Meet Liron Shapira, an angel investor who made a $6 million profit after investing $10,000 in Coinbase. He told Insider that he now thinks all of crypto is "essentially worthless" — then broke down why he sold the stake that made his fortune.
9. This veteran investor recommends these beaten-down growth stocks that are poised to bounce back in defiance of the worst tech-sector landscape since the dot-com bubble. All year, the technology-heavy Nasdaq has taken a beating but one expert broke down three companies that offer big upside — see the picks here.
Madison Hoff/Insider
10. Union participation has plunged since 1983, according to Bureau of Labor Statistics data. At that time, 20.1% of wage and salary workers held union memberships. A decade later in 1993 it fell to 15.7%, and in 2020 that dropped again to 10.3%.
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Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).
Edited by Jason Ma ( jma@insider.com) in Los Angeles.
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