The Fed surprises with aggressive rate hike forecasts
Dollar/yen breaks 145 as BOJ remains dovish
C.bank meetings in UK, Switzerland and Norway are coming up
By Tom Westbrook
SYDNEY, Sept 22 (Reuters) –
The dollar surged to a new two-decade high and Asian stocks hit a two-year low on Thursday after the Federal Reserve sharply hiked US interest rates and forecast to raise them further and faster than investors expected to tame inflation.
The median of Fed officials’ outlook for US rates to end the year at 4.4% and remain high into 2023 appeared to spook even tightly positioned interest rate and currency markets, quickly stifling relief that the rate hike was set to take place on March 10 Wednesday hadn’t been bigger.
The dollar index, a measure of the greenback against a basket of majors, extended gains on Wednesday to hit a fresh 20-year high of 111.72 during the Asia session.
The euro fell to a 20-year low of $0.9807 as Russia mobilized reserve forces for a war in Ukraine. The yen briefly hit a 24-year low as Japanese policymakers unanimously stuck to ultra-light stances, as expected.
Gold fell 1%. Sterling, the Aussie, Kiwi, Loonie, Sing Dollar and Yuan all hit milestone lows. S&P 500 futures fell 0.6% and European futures fell 2%.
“The Fed isn’t going to stop any time soon and there’s going to be an extended period of tightening for at least the next year or so,” said Sally Auld, chief investment officer at Sydney-based wealth manager JB Were.
“What are you buying right now besides the US dollar?” She added, citing growth clouds over Europe, UK and China as well as yen weakness as Japan keeps interest rates low.
MSCI’s broadest index of Asia-Pacific stocks outside of Japan fell 1.4% to its lowest level since May 2020. Japan’s Nikkei fell 0.8% to hit a two-month low.
The US yield curve deepened its inversion as investors priced in the chance of a ‘soft’ economic landing and braced for damage to longer-term growth.
The 2-year yield rose as high as 4.1320% in Asia, while the 10-year yield remained at 3.5416%.
“The chances of a soft landing are likely to diminish to the extent that policy needs to be more hawkish or longer hawkish,” Fed Chair Jerome Powell told reporters after the rate hike announcement.
Central bank meetings in Taiwan, the Philippines, Indonesia, Switzerland, the UK and Norway are due later in the day, with rate hikes expected across the board.
Japan and China are the only major global outliers, with China cutting interest rates to support a faltering economy and Japan awaiting wage increases before considering an exit from a huge asset-buying project that is pinning rates near zero.
The yen shot to a two-decade low of 145.50 per dollar after the BOJ held policy steady before recovering somewhat as traders jitters at the prospect of currency intervention.
Governor Haruhiko Kuroda’s views on the yen’s steep slide will be closely watched as he speaks at 06:30 GMT.
The Australian and New Zealand dollars traded at their lowest levels since mid-2020, with the Aussie falling 0.7% to $0.6586 and the Kiwi down 0.6% to $0.5816 on Thursday.
“Between the escalating geopolitical risks in Ukraine and the dovish Fed, the US dollar continues to thrive,” said currency strategist Alvin Tan of RBC Capital Markets in Singapore.
In commodity markets, oil recouped early losses as concerns over tight supplies headed into the winter, eclipsing fears of a global recession that sparked a pullback in the previous session.
Brent crude futures were up 50 cents, or 0.6%, to $90.33 a barrel by 0319 GMT. US West Texas Intermediate (WTI) crude was up 45 cents at $83.39.
Wheat stabilized after rising on fears of a bigger and deeper war in Ukraine.
Cryptocurrencies have been held near recent lows, with Bitcoin trading at $18,795.
(Edited by Sam Holmes, Ana Nicolaci da Costa and Kim Coghill)