Global stock markets have been going through a tough challenge. The stunning rally of the US dollar and aggressive rate hikes worldwide create tight financial conditions that trigger regular sell-offs of global stocks.
The protracted bear trend in stock markets has not gone unnoticed by governments and central banks. The market turmoil suggests that authorities have to take immediate action. At the same time, under adverse economic conditions, governments can do nothing but come up with verbal interventions. For example, it was the only measure that the UK Treasury and the Bank of England could afford. The central bank announced that it would buy as much government debt as needed to quell jitters in the domestic bond market caused by the aggressive fiscal policy. The Bank of Japan was more resolute and intervened in the foreign exchange market for the first time since 1998 to prop up the yen in its free fall. In its customary move, the People's Bank of China tightened a risk reserve requirement for banks when buying foreign currencies through forward contracts. Nevertheless, all these efforts have been to no avail on the back of the nonstop rally of the US dollar and aggressive monetary tightening by most central banks.
Commonly, chief financial officers, investors, finance ministers, and traders welcome high volatility across global markets. However, the current market turbulence makes market participants unnerved. Few experts predicted two-digit inflation rates worldwide a year ago. Throughout the whole of 2022, stock investors have been suffering heavy losses as soaring inflation has been playing havoc with global markets. In turn, monetary authorities and governments have to tackle the fallout. The fundamentals encourage the US dollar’s strength in the long term. No doubt, investors are seeking shelter in the world’s reserve currency.
