The Asian stocks were on track to experience their worst day in a month, following the hawkish comments made by Federal Reserve Chair Jerome Powell. Powell’s comments suggest the possibility of the U.S. central bank returning to a large rate hike to manage sticky inflation. Powell stated that the Fed would likely have to increase the interest rates more than previously anticipated, responding to the recent strong data. His comments sent stocks sharply lower, weighed on gold while pushing the dollar to its three-month high.
Asian Shares are Set to Experience their Worst Day in a Month
The MSCI’s broadest index of Asia-Pacific shares outside Japan experienced a 1.69% drop to 514.71, setting a downbeat mood to spill over to Europe as futures indicate a lower open. Shorter-term Treasury yields continued to climb on Wednesday, with the two-year US Treasury yield, which typically moves in line with interest rate expectations, up by 4.9 basis points at 5.060%. It touched a fresh near 16-year high of 5.078% earlier in the session.
Powell’s Hawkish Remarks
Following a series of jumbo hikes last year, the Fed raised rates by 25 basis points in its last two meetings. However, resilient economic data since the start of this year stoked fears that the U.S. central bank might return to larger rate rises, which Powell acknowledged. Powell said, “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Powell’s comments have cast a shadow over the Asian markets, with most markets experiencing heavy losses. Australia’s S&P/ASX 200 index fell nearly 1%, while China shares slipped 0.59%. Hong Kong’s Hang Seng Index fell 2.65%, on course for its worst day since late January.
The Nikkei.N225 was the only stock index in Asia with gains, up nearly 0.5%, as a weakening yen buoyed exporters.
Dollar Continues to Charge
In the currency market, the dollar continued to surge, touching a three-month high. The dollar index, which measures the U.S. currency against six major rivals, was last at 105.77, up by 0.114%, after surging 1.3% on Tuesday.
The dollar rose as high as 0.54% against the yen to touch 137.90, its highest since Dec. 15, before easing to trade at 137.67 ahead of the Bank of Japan meeting on Thursday and Friday, when the central bank is expected to stick to its ultra-loose monetary policy.
Sterling was last trading at $1.1824, down 0.02% on the day, having touched more than a three-month low of $1.1812 earlier in the session.
Friday’s U.S. payrolls data and next week’s inflation figures will dictate further moves from the Fed, shifting the focus from Powell’s hawkish remarks to the U.S. economy’s resilience.
