LONDON - The U.S. dollar hit 20-year highs and world stocks fell towards their lowest in over a year on Friday as markets anticipated more U.S. interest rate rises, while Asian stocks fell on worries about the hit to growth from China's zero-COVID policy.
The U.S. currency was heading for its fifth straight week of gains after the Federal Reserve raised rates by 50 basis points this week. The market is pricing in a more than 90% chance of a 75 bps hike in June, according to Refinitiv data.
U.S. payrolls data due later on Friday will help traders gauge the strength of the U.S. economy. Economists polled by Reuters predicted the data would show the United States created 391,000 new jobs in April, versus 431,000 a month earlier.
"The trend is still for a strong and very tight labour market, which is feeding into wage increases and is an issue for inflation longer term," said Gergely Majoros, a member of the investment committee at asset manager Carmignac. This made it hard for the Fed keep prices stable, he added.
"Job creation is still too hot for the Fed to achieve its mandate."
The dollar hit a 20-year high of 104.06 against an index of currencies and gained 0.19% to 130.42 yen, also close to its highest in 20 years.
The euro fell 0.38% to $1.0499, near recent five-year lows.
Sterling fell to its lowest against the dollar in nearly two years after dropping 2.2% on Thursday.
The Bank of England raised rates by 25 basis points as expected, but two policy makers expressed caution about rushing into future rate hikes.
MSCI's world equity index fell 0.52%, towards its lowest since Feb 2021.
U.S. stock index futures dropped 0.6% after the Dow Jones Industrial Average and the S&P 500 both slid more than 3% overnight, and the Nasdaq Composite shed 4.99% in its biggest single-day plunge since June 2020.
European stocks fell more than 1% to their lowest since mid-March and were heading towards their worst week in two months. Britain's FTSE dropped 0.8%.
"We are still left with an environment where growth is slowing and we are starting to see evidence that sectors such as U.S. housing are slowing, global PMIs are showing the toll and accumulated savings are getting spent down," said Grace Peters, EMEA head of investment strategy at JPMorgan Private Bank.
"But based on the latest U.S. data, we are comfortable with tracking for inflation peaking in Q2."
U.S. yields are rising on expectations of a fast pace of rate hikes. The yield on U.S. 10-year notes was last 3.063% after crossing 3.1% overnight for the first time since November 2018.
Germany's 10-year government bond yield rose to 1.057%, its highest since 2014.
MSCI's broadest index of Asia-Pacific shares outside Japan shed 2.87% to its lowest level since March 16, the day when Chinese vice premier Liu He boosted shares by pledging to support markets and the economy.
The benchmark is down 4% from last Friday's close, which would be its worst week since mid-March. Japan's Nikkei bucked the trend, rising 0.69% on its return from a three-day holiday.
Chinese blue chips shed 2.53%, the Hong Kong benchmark lost 3.89% and China's yuan tumbled to an 18-month low in both onshore and offshore markets.
China will fight any comments and actions that distort, doubt or deny the country's COVID-19 response policy, state television reported on Thursday, after a meeting of the country's highest decision-making body.
Investors said that appeared to rule out any easing in the zero-COVID policy, which is slowing Chinese economic growth and snarling global supply chains.
"The silver lining is the expectation that new Chinese fiscal measures could come out over the weekend," said Dickie Wong, director of research at Hong Kong brokerage Kingston Securities. "That's the only thing giving Asian markets some support at their current low valuations."
Oil prices shrugged off concerns about global economic growth as worries about tightening supply underpinned prices ahead of the European Union's impending embargo on Russian oil.
Brent futures rose 0.29% to $111.78 a barrel. U.S. crude rose 0.23 % to $108.51 a barrel.
Gold ticked down 0.12% to $1874.7 an ounce.
(Reporting by Carolyn Cohn in London and Alun John in Hong Kong; Editing by Andrew Heavens)