(Reuters] – This week’s central bank world leaders are the U.S. Federal Reserve Bank, Bank of England, and Reserve Bank of Australia. They will be holding policy meeting.

Also due is a report on China’s economic state, and a look at the possibility of unforeseen Russian sovereign debt defaults.

Was anyone able to say dollar?

This is a preview of the markets for week ahead from Tom Westbrook (Singapore), Ira Iosebashvili (New York), Dhara Ranasinghe and Sujata Ro in London.

1. THE HAWKS FLY

The Fed’s increasingly hawkish rhetoric is causing sell-offs on the stock and bond market. On Wednesday, we’ll see how aggressive they plan to be in the coming months.

Investors can expect to see a substantial 240 basis point increase in monetary tightening by 2022, as the Fed flagged a 50-basis-point rise in interest rates on May 4. The Fed is expected to continue surprising on the hawkish-side as it fights for the lowest inflation rate in 40 years. [L2N2WK2GX]

Also, markets will be watching the Fed’s plans to manage its $9 trillion-plus balance sheet. It could begin unwinding in May.

Graphic: Fed & stocks – https://fingfx.thomsonreuters.com/gfx/mkt/gkplgkbayvb/Pasted%20image%201651081055454.png

2/4 IN A ROW

A day after the Fed’s meeting, it is expected that the Bank of England will raise interest rates for the fourth consecutive time. This would be the first time since 1997.

Andrew Bailey, BoE boss, said that there is a fine line between controlling inflation at 7%, more than three-times the target and not causing a recession.

The BoE must first sell bonds that it owns by requiring a quarter-point increase to 1%. The big question is when the sales will begin; there are estimates that they could start in June or well into 2023.

While active bond sales could tighten monetary conditions, they can also hurt an economy that is struggling. No central bank has started this process.

Graphic: Bank of England gilt holdings – https://graphics.reuters.com/BRITAIN-BOE/klvykldlzvg/chart.png

3.DOLLAR THE DISASTER

April is known to be the most cruel month, and this has certainly been true for those who are on the wrong side.

A rise of 5% in the has been a result of safe-haven flow and Fed hawkishness. This led to big falls in the euro, yen and emerging market currencies such as the Yuan.

Global financial conditions are becoming more tight, and this can lead to slower economic growth. Japan, Germany and the rest of the world face rising import prices for high-priced components and materials.

The U.S. currency was weakened by past Fed tightening cycles. This time, however, we can draw comparisons with 1994 where 300bps rate increases lifted the dollar index 4.6%. (This was after a jump of 10.5% in 1993). They were responsible for subsequent crises in emerging markets.

Graphic: What is the unstoppable dollar made of? – https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwgxydpo/USD2904.PNG

4/CHINA TO AUSTRALIA

The yuan is down by 4% for the month. However, weekend data from China shows that factory activity continues to decline.

Beijing appears to view the yuan, at least for now, as the main policy tool. This disappointment has been felt by stock markets that had hoped for explicit government support or an easement of COVID rules. China has also reduced the price of quarry products, which has caused the dollar to drop 4.5% in April.

Recent data from Australia shows that first quarter inflation is at its highest level in 20 years. This makes it look like a hike could be imminent. Many economists and swaps pricing experts believe a rate increase of 15 bps is possible.

Graphic: , Aussie tumble as growth clouds gather – https://fingfx.thomsonreuters.com/gfx/mkt/mopanowxrva/Pasted%20image%201651136333241.png

GAS & DEFAULT

Moscow escalated its hostilities with Western capitals in the dispute over gas shipping payments. Following their refusal to take its request for payment in roubles, Moscow cut off gas supply to Bulgaria and Poland.

While the European Commission warns that payments in roubles could violate sanctions, official are still trying to figure out what EU’s position is on Moscow’s payments system.

Germany, which uses around a third as much Russian gas than Germany, is the big elephant in this room. If supplies stop flowing, the economy might slip into recession.

Russia is under pressure to pay its April 4th due sovereign bond payments. Russia would be in default if it fails to make its payments within the 30-day grace period.

Graphic: Russia’s roubles gas payment – https://graphics.reuters.com/UKRAINE-CRISIS/jnvwerljnvw/graphic.jpg