Sydney, September 22 (BNA): The dollar rose to a two-decade high, and Asian stocks hit a two-year low, today, Thursday, as prospects for US interest rates rising more and faster than expected frightened investors.
The Federal Reserve raised its benchmark interest rate by 75 basis points on Wednesday, the third such hike in a row, and officials expect rates to reach 4.4% this year — higher than markets had set before the meeting and 100 basis points more than the Bank had forecast. Federal Reserve three times. Months ago, Reuters reports.
The dollar rose, short-term bonds were sold and Wall Street fell overnight, with the moves extending into the Asian trading session.
The euro fell to a 20-year low of $0.9807 amid growing concerns about an escalation of the war in Ukraine after Russia mobilized reservists for the first time since World War II. Read more
The dollar index, which is up 2% this week and nearly 17% this year, rose 0.2% to a new 20-year high of 111.72. Gold fell 1%. S&P 500 futures are down 0.8% and European futures are down 2%.
The British pound hit a 37-year low, and the Australian, Kiwi, Canadian and Singaporean dollars hit two-year lows. The Chinese yuan reached a 2-year low and the yen hovered near a 24-year low as investors waited for the Bank of Japan meeting.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.4% to its lowest level since May 2020. Japan’s Nikkei fell 1% to its lowest in two months.
“The Fed is not going to stop any time soon, and there will be an extended period of restrictive monetary policy for at least the next year or so,” said Sally Old, chief investment officer at GB Ware in Sydney.
“What else do you buy except for US dollars at the moment?” She added, citing growth clouds in Europe, Britain and China and a weak yen as Japan keeps interest rates low.
The US yield curve deepened its inversion with short-term Treasuries selling and eventually a longer rally as investors priced in the opportunity of a “soft” economic downturn and braced for the damage to long-term growth.
The 2-year yield rose to 4.1320% in Asia while the 10-year yield was stable at 3.5593%.
“The chances of a soft landing will likely diminish to the point where policy needs to be more restrictive or restrictive for a longer period,” Fed Chairman Jerome Powell told reporters after the rate hike was announced.
rise ahead
Central bank meetings are scheduled for Taiwan, Japan, the Philippines, Indonesia, Switzerland, Britain and Norway later in the day, with increases expected everywhere except Japan.
Japan this week pushed home its commitment to tight monetary policy by spending more than 2 trillion yen ($13.8 billion) over the past two days to maintain a 0.25% cap on the 10-year Japanese government bond yield.
However, even if there are no policy changes, there will be intense focus on Governor Haruhiko Kuroda’s views on the sharp slide in the yen, as growing unease could signal policy changes and doves could trigger further yen selling.
The yen is down about 20% against the dollar this year, and is close to a 24-year low of 144.46 per dollar.
“We see USD/JPY trading risks heading to 147 in the coming months,” Rabobank strategist Jane Foley said in a note to clients.
The Australian and New Zealand dollars were held at their lowest levels since mid-2020, with the Australian dollar down 0.7% on Thursday at $0.6586 and the New Zealand dollar down 0.6% at $0.5816.
In commodity markets, oil fell on concern that higher interest rates would hamper demand. US crude futures settled in early Asian trading at $83.43 a barrel. Brent futures were at $90.39.
Wheat soared overnight amid fears of a wider and deeper war in Ukraine.