Global equities, oil prices and bitcoin plunged on Monday on heightened recession fears triggered by runaway inflation.
The dollar, however, gained versus major rivals, benefitting from its status as a haven investment and expectations of aggressive interest-rate hiking from the Federal Reserve.
The US currency struck a 24-year peak against the yen, while it broke above 78 Indian rupees for the first time. It jumped one per cent versus the pound.
“The hangover from a higher-than-expected US inflation reading is continuing to cause scissoring pain throughout the markets, as it extinguishes the hope the US Federal Reserve might be able to take its foot off the pedal on interest rate rises,” AJ Bell investment director Russ Mould noted.
US and European stocks had already tumbled on Friday following the inflation data, with Asia following suit on Monday.
European stock markets extended pre-weekend losses with falls of around two percent before Wall Street reopens.
London took a hit also from data showing the UK economy contracted in April for a second month in a row.
World oil prices, whose surge has contributed massively to soaring inflation, slid about 1.5 per cent as the high cost of living increases recession expectations.
The possibility of more COVID restrictions in China's biggest cities also weighed on crude futures as the country is a major oil consumer.
Fresh coronavirus outbreaks in Shanghai and Beijing have seen authorities reimpose containment measures.
Bitcoin tumbled to an 18-month low under $25,000 as investors shunned risky assets in the face of the vicious global markets sell-off.
The unit took a heavy knock also from news that cryptocurrency lending platform Celsius Network paused withdrawals, citing volatile conditions.
“It is not very surprising to see such a strong downturn as we have noticed an increased correlation over the last few years between traditional stocks, which have also tanked recently, and the cryptocurrency market,” XTB chief market analyst Walid Koudmani noted.
Investors were left surprised on Friday when data showed US inflation jumped to 8.6 per cent in May, the fastest pace in more than 40 years, as the Ukraine war further fuelled energy and food prices.
The reading has led to fervent speculation that the Fed will now be contemplating a single interest-rate lift of 75 basis points.
With the central bank forced to be more aggressive, there is a concern that the US economy could be sent into recession next year.
“The market is now thinking much more about the Fed driving rates sharply higher to get on top of inflation and then having to cut back as growth drops,” SPI Asset Management's Stephen Innes said.