Dow futures drop 200 points as British pound hits record high against 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. stock futures fell on Monday as soaring interest rates and foreign currency turmoil threatened to push the S&P 500 to a new closing low for the year.

Dow Jones Industrial Average futures fell 210 points, or 0.7%. S&P 500 futures lost 0.7%. Nasdaq 100 futures lost 0.6%.

The British pound fell to a record low on Monday against the US dollar. The British pound at one point fell 4% to an all-time low of $1.0382. The Federal Reserve’s aggressive bullish campaign, coupled with the UK tax cuts announced last week, pushed the US dollar higher. The euro has hit its lowest level against the dollar since 2002. A rise in the greenback can hurt the profits of US multinationals and also wreak havoc on global trade, much of which is traded in dollars.

“Such strength in the US dollar has historically led to some sort of financial/economic crisis,” Michael Wilson, Morgan Stanley’s chief US equity strategist, wrote in a note. “If there was a time to be on the lookout for something to break, this would be it.”

Stocks ended a brutal week on Friday, with the blue-chip Dow Jones finding a new intraday low for the year and closing down 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%.

Traders will be watching the S&P 500 closely on Monday for any break below its bear market low. The S&P’s lowest close for the year in June was 3,666.77. It closed Friday at 3,693.23 after briefly trading below that close. The benchmark’s intraday low for the year is 3,636.87. Any trades below these levels could lead to more selling in the market.

Another high-profile rate hike by the Federal Reserve last week was the catalyst for the markets’ latest leg down. The central bank has indicated that it may raise rates to as high as 4.6% before pulling out. Forecasts also show that the Fed’s plans will be aggressive this year, raising rates to 4.4% before the end of 2022.

Bond yields climbed after the Fed decreed another rate hike of 75 basis points. Yields on 2- and 10-year Treasury bills hit highs not seen in more than a decade. On Friday, Goldman Sachs cut its year-end target for the S&P 500 to 3,600 from 4,300.

Rates jumped again on Monday with the 2-year Treasury note rising above 4.29%.

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