Forex

The US dollar soared to the highest level in almost 20 years after the Federal Reserve decided to accelerate its rate hikes. The bank raised interest rates by 50 basis points, the highest increase since 2002 as it continued battling inflation. Officials signaled that the hiking cycle will continue in the remaining scheduled meetings of the year. After soaring in the first weeks of the month, the dollar index erased some of these gains as risks eased.

The euro avoided falling to parity with the US dollar as investors started pricing in more tightening by the European Central Bank (ECB). The bank is now expected to start hiking interest rates in July and exit its negative rates in September. This was confirmed by Christine Lagarde and the bank’s chief economist, Philip Lane. Preliminary data by Eurostat showed that the country’s inflation rose to a record high of 8.1% in May and the situation will likely continue after the bloc is set to embargo Russian oil.

Meanwhile, the British pound continued consolidating as investors worried about the slow recovery of the country. The biggest worry is stagflation since the UK is expected to be the worst affected in the developed world.

Commodities

Commodity prices continued their bullish trend as the crisis in Ukraine continued. The Bloomberg Commodity Index rose for the sixth straight month and reached the highest point since 2011. After consolidating for the most part of the month, the price of oil rose above $120 as investors reacted to the partial embargo of Russian oil by the European Union.

They also announced the intention to block European insurance companies from insuring Russian cargo. Further, oil prices rose after signs emerged that China was easing its Covid-19 restrictions, which will lead to more demand.

Natural gas prices continued their bullish trend as worries that Russia will stop supplying European consumers. Meanwhile, gold and silver declined for the second straight month after the hawkish decisions by the Federal Reserve.

Indices

Global indices declined sharply in May and then attempted to recover in the final part of the month. The Vanguard World Index ended the month at $93.53, which was 8% above the lowest level during the month. In the United States, the Nasdaq 100 index rose by 10% from its monthly low as investors bought the dip.

May was an eventful month for stocks as the earnings season continued. In all, according to FactSet, most companies in the S&P 500 index recorded strong revenue growth in the first quarter. However, with the cost of doing business rising, the average earnings growth was the lowest since 2020.

Economic Events

There will be several notable economic events in June. The most important ones will be central bank decisions by the Federal Reserve, the Bank of England, and the European Central Bank. Analysts expect that the first two will hike rates while the ECB will continue reducing its balance sheet ahead of its first hike in July. Other central banks that will meet in June are the Bank of Canada, Bank of Japan, and Swiss National Bank.