Global stocks rally to 14-month highs

Markets rally as Dollar weakens

By Raed Alkhedr | @raedalkhedr | 16 June 2023

  • Global stocks surge, fueled by Fed's rate decision

  • Weakened US dollar drives market optimism.

  • Sterling set for strong weekly gains.

  • MSCI All-World index climbs near 14-month high.

Global stocks poised for weekly gains as investors welcome Fed's interest rate decision

Global stocks are on track to achieve substantial gains this week, reaching their highest levels in 14 months. The market rally comes as investor confidence grows following the Federal Reserve's recent announcement to keep interest rates unchanged, a stark departure from its previous 10 consecutive meetings. This decisive move by the Fed reflects a strong commitment to controlling inflation. Consequently, the US dollar has weakened considerably against major currencies and commodities, resulting in the dollar index experiencing its most significant weekly loss since January, down 1.3%. The MSCI All-World index has also made notable gains, rising by 0.2% and approaching its highest point since mid-April 2022.

The persistent stream of disappointing economic data has continued to bolster global stock markets. The increasingly prevalent belief is that the US Federal Reserve will maintain interest rates at their current level for a more extended period, especially given its indication that future monetary policy decisions will be heavily influenced by economic indicators. Recent data reveals a rise in weekly unemployment claims in the US, alongside a slowdown in retail sales growth. These factors may signal a further deceleration in inflation growth in the near future.

Sterling shows strength, set for strongest weekly gains in six months

The sterling has experienced a remarkable surge, taking advantage of the weakening US dollar and the European Central Bank's ongoing monetary tightening measures. The currency is on track to achieve its most substantial weekly gains in six months.

This impressive performance occurs just as attention shifts to the upcoming meeting of the Bank of England. The prevailing expectation leans toward another interest rate hike by the Bank of England, particularly following the European Central Bank's decision yesterday to raise interest rates by a quarter basis point. Additionally, recent economic data showcasing the resilience of the British economy, despite external pressures and challenges, has further supported the sterling's ascent. Notably, British wages have seen a much more rapid increase than anticipated, heightening investors' expectations that the Bank of England will be compelled to raise interest rates even further.

The Bank of England's current interest rate stands at 4.5%, with traders anticipating a rise to approximately 5.75% by the beginning of next year.