Singapore, June 15 (BNA): Asian stocks hit two-month highs Thursday, and the dollar hit fresh highs against the yen and yuan as the Federal Reserve paused interest rate hikes as it eased further, drawing attention to the contrast with more pessimistic policy expectations. In Asia.
The Fed left its benchmark funds rate window at 5-5.25%, as expected, but committee members surprised markets by forecasting two more 25 basis point hikes this year, sending short-term US yields higher and closing bets on any cuts. In 2023, Reuters reported.
Meanwhile, the European Central Bank is expected to raise interest rates for the eighth time in a row later in the day, which will push borrowing costs to their highest levels in two decades. The euro, which hit a one-month high of $1.0865 overnight, was trading at $1.0816 as investors await the decision.
That came to a huge relief for Asia’s largest economy, as China cut another key interest rate on Thursday amid fresh signs its economy is faltering, and traders are betting that the Bank of Japan will stick with its ultra-easy monetary policy this week.
The yen fell about 0.9 percent to a six-month low of 141.43 per dollar. The yuan hit a six-month low of 7.1819, while hopes for more stimulus sent stock indexes in Hong Kong and Shanghai up more than 1%.
MSCI’s broadest index of Asia-Pacific stocks outside Japan rose 0.6% to a new two-month high, while Japan’s Tearaway Nikkei index extended its climb to fresh three-decade highs.
S&P 500 futures were flat. European futures and the FTSE are down about 0.2%.
“The Fed is acting very steady,” said Bart Wakabayashi, a branch manager on State Street in Tokyo, bringing the contrast with a catalyst Japan to the fore.
“They point to inflation, the labor market, wages and say look we want (inflation) at 2% and whether it’s 6% or 5% or 5.5% still not at 2% – they’ll do what they have to do to get that down to 2%.”
The two-year Treasury yield, which closed two points higher at the end of the New York session, rose another 3.5 basis points in Tokyo trading, to 4.7416%. The 10-year yield rose 3.1 basis points to 3.8291%.
Fed funds futures prices didn’t budge much in the aftermath of the meeting, but expectations for a hike next month confirmed a bit and traders pushed any hopes of deeper cuts into 2024.
Federal Reserve Chairman Jerome Powell said, “The conditions that we need to see … to bring down inflation are starting to fall into place.” But the process of working on inflation will take some time.”
In Asia, the focus was on China as industrial production and retail sales figures fell short of market expectations and real estate investment and home sales fell at a sharper pace, in the latest sign that the country’s post-pandemic economic recovery is losing steam.
China cut a key benchmark, medium-term loan rates, by 10 basis points – after two days of cutting short-term interest rates – and the yuan reached a six-month low on the expectation that more support is on the way, before stabilizing somewhat. .
“Expectations are growing that additional stimulus will come from Beijing and this could be the much-needed catalyst for the Chinese market to weather a disappointing first half,” said Tai Hui, chief Asia-Pacific strategist at JPMorgan Asset Management.
Elsewhere, those hopes and strong Australian jobs data supported the Australian dollar, which was steady at $0.6822, while the New Zealand dollar was in trouble after data showed the economy contracted into recession this year.
This likely confirmed the end of rate hikes and the New Zealand dollar fell 0.2% at $0.6197.
The euro, which has been rising against the dollar for nearly two weeks amid signs of slowing US inflation and hints of a slowdown in the labor market, faces its next test when the European Central Bank meets later in the day. An increase of 25 basis points is expected.
The yen fell as expectations mounted that the Bank of Japan will not make policy adjustments when its two-day meeting ends on Friday. Japanese government bonds rose slightly.
Oil settled, with Brent crude futures rising 0.5 percent to $73.55 a barrel.
Gold, which does not pay income, was pressured by expectations that US interest rates would remain at high levels, and it fell to a two-week low of $1,934 an ounce.
Bitcoin fell by 3% overnight and lost just under $25,000.
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