The Federal Reserve raised its benchmark rate by 75 basis points on Wednesday, the third consecutive such hike, and officials expect rates to hit 4.4% this year – more than markets had expected before the meeting. and 100 basis points higher than the Fed forecast three months ago.
The dollar rose, short-term bonds sold off and Wall Street fell overnight, with moves extending into the Asian session.
The euro fell to a 20-year low of $0.9807 amid growing concerns over an escalation of war in Ukraine after Russia mobilized reservists for the first time since World War II.
The dollar index, which is up 2% this week and nearly 17% this year, rose 0.2% to a new 20-year high at 111.72. Gold fell 1%. S&P 500 futures fell 0.8% and European futures fell 2%.
The British pound hit its lowest level in 37 years and the Australian, Kiwi, Canadian and Singaporean dollars hit their lowest level in two years. The Chinese yuan hit a two-year low and the yen hovered near a 24-year low as investors awaited a Bank of Japan meeting.
MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 1.4% to its lowest level since May 2020. The Japanese Nikkei fell 1% to a two-month low.
“The Fed is not going to stop any time soon and there is going to be an extended period of tight monetary policy for at least the next year,” said Sally Auld, chief investment officer at wealth manager JB Were in Sydney. .
“What else are you buying besides the US dollar right now?” she added, citing clouds of growth in Europe, Britain and China and a weak yen as Japan keeps interest rates low.
The U.S. yield curve deepened its inversion as short-term Treasuries sold off and the longer-term rallied as investors assessed the possibility of a “soft” economic landing and braced for damage to the economy. long-term growth.
The two-year yield hit 4.1320% in Asia, while the 10-year yield held steady at 3.5593%.
“The chances of a soft landing are likely to diminish to the extent that policy needs to be tighter, or tighter for longer,” Fed Chairman Jerome Powell told reporters after the hike was announced. rates.
Central bank meetings in Taiwan, Japan, the Philippines, Indonesia, Switzerland, Britain and Norway are scheduled for later today with hikes expected everywhere but Japan.
Japan confirmed its commitment to an ultra-dovish monetary policy this week by spending more than 2 trillion yen ($13.8 billion) in the past two days to maintain a 0.25% cap on bond yields. 10-year Japanese government bonds.
However, even if no policy shifts occur, Governor Haruhiko Kuroda’s views on the steep fall in the yen will come under intense scrutiny as growing unease could portend policy shifts and a dovish attitude could trigger further yen selling.
The yen is down about 20% against the dollar this year and at 144.46 to the dollar, it is close to a 24-year low.
“We see the risk of USD/JPY heading towards 147 in the coming months,” Rabobank strategist Jane Foley said in a note to clients.
The Australian and New Zealand dollars are at their lowest since mid-2020, with the Aussie down 0.7% on Thursday to $0.6586 and the Kiwi down 0.6% to $0.5816.
In commodity markets, oil slid on fears that rising interest rates could dampen demand. U.S. crude futures were flat in early trading in Asia at $83.43 a barrel. Brent futures were at $90.39.
Wheat rose overnight on fears of a wider and deeper war in Ukraine. ($1 = 144.3800 yen)