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Dow futures fall 200 points as the British pound hits record low against the dollar

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Dow futures fall 200 points as the British pound hits record low against the dollar

Traders work on the floor of the New York Stock Exchange during morning trading on September 06, 2022 in New York City.

Michael M. Santiago | Getty Images

U.S. equity futures fell on Monday as surging interest rates and foreign currency turmoil threatened to pushed the S&P 500 to a new low for the year.

Dow Jones Industrial Average futures fell 221 points, or 0.8%. S&P 500 futures shed 0.8%. Nasdaq 100 futures lost 0.6%.

The British pound dropped to a record low on Monday against the U.S. dollar on Monday. Sterling at one point fell 4% to an all-time low of $1.0382. The Federal Reserve’s aggressive hiking campaign, coupled with U.K.’s tax cuts announced last week has caused the U.S. dollar to surge. A surging greenback can hurt the profits of U.S. multinationals and also wreak havoc on global trade, with so much of it transacted in dollars.

On Friday stocks ended a brutal week with the blue-chip Dow finding a new intraday low for the year and closing lower by 486 points. The broad-market S&P 500 temporarily broke below its June closing low and ended down 1.7%. The tech-heavy Nasdaq Composite lost 1.8%.

Driving losses on the week was another super-sized rate hike by the Federal Reserve and a strong commitment given by Chair Jerome Powell to tame inflation. The central bank indicated it could raise rates as high as 4.6% before pulling back. The forecast also shows the Fed plans be aggressive this year, hiking rates to 4.4% before 2022 ends.

“A lot of traders expected hints of a Fed pivot at Jackson Hole or at the September FOMC policy, but that never happened,” said Edward Moya, senior market analyst at Oanda. “A hard landing is becoming the base case scenario for many and that means more economic pain along with a much weaker stock market is coming.”

Bond yields soared after the Fed enacted another rate hike of 75 basis points. The 2-year and 10-year Treasury rates hit highs not seen in over a decade. On Friday, Goldman Sachs slashed its year-end target for the S&P 500 to 3,600 from 4,300.

“How far we go below the summer lows is anyone’s guess,” said Oanda’s Moya. “It doesn’t seem like any economic data release or Fed speak will convince markets that a downshift from this aggressive tightening campaign will be happening anytime soon.”

Looking ahead, traders are anticipating the release of personal consumption expenditures data, the Fed’s preferred inflation gauge, on Friday. Durable goods and consumer sentiment numbers will also come out this week.

A slew of Fed speakers — including Fed Vice Chair Lael Brainard, St. Louis Fed President James Bullard, San Francisco Fed President Mary Daly and Fed Governor Michelle Bowman — and Chair Powell are also scheduled to speak at various events this week.

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