US stock futures jump and the dollar drops as traders dial back expectations for a major Fed rate hike

• US stock futures rose sharply and the dollar fell Monday as traders dialed back their bets for a huge Fed rate hike.
• The market was betting on a 1% interest-rate hike, but now sees 0.75% as more likely from the Fed next week.

US stock futures rose sharply on Monday and the dollar fell as investors rowed back on their expectations that the Federal Reserve will hike interest rates by 100 basis points next week.

S&P 500 futures were 1.01% higher, Dow Jones futures were up 0.89%, and Nasdaq 100 futures had climbed 1.23% as of 6.20 a.m. ET.

The MSCI World stock index rose 0.43% Monday, with major equity indexes around the world in the green. In Europe, the continent-wide Stoxx 600 was up 1.29% in morning trading.

China's CSI 300 rose 1.04% overnight, while Tokyo's Nikkei 225 climbed 0.54%.

The bounce in global stocks was largely driven by market players dialing down their expectations that the Fed will raise interest rates sharply at its two-day meeting starting next Wednesday, analysts said.

Last week, in the wake of data that showed US inflation topping 9% for the first time in more than 40 years, traders were betting that the Fed would hike rates by 100 basis points.

However, they have reconsidered those bets after consumers' inflation expectations cooled last week and Fed officials spoke in favor of a 75 basis point move.

The Fed has already increased interest rates sharply this year, and made its first 75 basis point rate hike since 1994 last month. The target range for the federal funds rate now stands at 1.5% to 1.75%, up from 0% to 0.25% in March.

Concerns about global economic growth have prompted consumers and investors to lower their expectations for the future rate of inflation. Somewhat counterintuitively, the expected slowdown in growth has helped stocks by making it less likely that central banks will raise rates dramatically.

Kristalina Georgieva, the head of the International Monetary Fund, this weekend said the organization would soon slash its global growth forecasts due to the war in Ukraine, higher energy prices, and central bank rate hikes.

"The outlook has darkened significantly, and uncertainty is exceptionally high," she said in a statement after a meeting in Indonesia.

Earnings season continues Monday with Bank of America and Goldman Sachs both set to release quarterly reports before the bell.

Elsewhere in markets:

• The dollar index fell sharply as traders lowered their Fed rate hike expectations. It was down 0.69% to 107.31.
• Oil prices rose after falling relatively sharply in recent weeks. Brent crude was up 2.05% to $103.23 a barrel, while WTI crude was 1.7% higher at $99.25 a barrel.
• Bond yields rose slightly, with the key 10-year US Treasury note up 4 basis points to 2.963%. Yields move inversely to prices.
• Bitcoin rose 4% to $22,236, according to prices on Coinbase. The cryptocurrency has recently rebounded after tumbling below $20,000

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