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Stock and bond prices fall as central banks unwind policy

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Stocks and government bonds fell on Thursday as more of the world’s central banks joined the US Federal Reserve in raising interest rates to curb persistently high inflation.

Wall Street’s S&P 500 index lost 0.7 percent in morning trading in New York, while the Nasdaq Composite’s technology index fell 1.3 percent, extending losses from the previous session. The European Stoxx 600 index fell 1.5 percent.

The moves in equity markets came after the Fed raised interest rates by 0.75 percentage points on Wednesday, marking the third straight increase of that magnitude and lifting the central bank’s target range to 3-3.25 percent.

Meanwhile, a closely watched “dot plot” of US tariff forecasts points to further increases and no cuts until the end of this year. The chart shows expectations for the U.S. benchmark rate to rise to 4.4 percent by the end of 2022, before peaking at 4.6 percent next year.

Other central banks joined the week-long tightening trend on Thursday, with the Bank of England raising its key lending rate by 0.5 percentage point to 2.25 percent and Swiss rates raising borrowing costs by 0.75 percentage point to 0.5 percent . The decision, framed by ING analysts as “the end of an era”, marked a shift into positive territory for the Swiss National Bank for the first time since 2015.

The yield on the 10-year U.S. Treasury note, seen as a gauge of global borrowing costs, jumped 0.19 percentage point to 3.7 percent as the debt instrument fell. The policy-sensitive two-year bond yield rose 0.14 percentage point to 4.14 percent.

Other government bonds also came under pressure, with the yield on Britain’s 10-year gilt bond rising 0.18 percentage point to 3.49 percent, while the equivalent German Bund yield added 0.08 percentage point to 1.97 percent.

Luke Bartholomew, senior economist at Edinburgh-based asset manager Abrdn, said the UK rate hike “actually looks quite small” compared to larger increases by other central banks.

“As such, the BoE continues to look like a laggard against international peers, which is likely to keep the pound under selling pressure,” he added.

In currency terms, the dollar fell 0.1 percent against a basket of six peers, paring a slide triggered earlier in the session by Japan’s intervention to prop up the yen for the first time in 24 years.

The dollar fell as the yen rose 2.4% to 140.72 yen from dollar, after Japan’s top currency official said the government had taken “decisive measures” to address the “rapid and one-sided” movement in the currency market. The last time Tokyo bought US dollars to protect the yen was in 1998.

The yen’s gains marked a sharp reversal from a loss of as much as 1.3 percent earlier in the session after the Bank of Japan said it would keep its key interest rate at negative levels, widening the gap between its accommodative monetary policy and its upward trend rate demonstrated by other central banks.

Sterling was slightly lower against the euro, with the pound’s earlier gains easing after the Bank of England’s rate decision. Markets were pricing in the likelihood of a three-quarter basis point hike by the Bank of England in line with the Fed.

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