* The Fed surprises with aggressive rate hike forecasts
* Dollar rises in Asia; S&P 500 futures wobble
* Cenbank meetings in Japan, UK and Norway are forthcoming
By Tom Westbrook
SYDNEY, Sept 22 (Reuters) – The dollar soared to a fresh two-decade high against major peers and stocks fell on Thursday after the US Federal Reserve hiked US interest rates and forecast more rate hikes as the investors expected.
The euro fell to a 20-year low of $0.9810 after Russia ordered the mobilization of reserve troops in an escalation of the war in Ukraine.
S&P 500 futures fell 0.6% and the dollar flew in early trade. The dollar index hit a 20-year high of 111.65 and dollar strength sent the Australian, Kiwi and Canadian dollars to fresh multi-year lows.
Sterling touched $1.1233, its lowest level in 37 years. South Korea’s won slipped above the symbolic 1,400 per dollar mark for the first time since 2009. The Thai baht, Malaysian ringgit, Singapore dollar and Swedish krona all made new lows.
Japan’s Nikkei fell 1%. Hang Seng futures were flat, although the Golden Dragon index of US-listed Chinese stocks took a hit, falling 5.9% overnight.
The Fed hiked rates significantly by 75 basis points on Wednesday – the third such hike in a row. This brings the bank’s target range for the overnight rate to 3-3.25%.
Forecasts showed officials expect rates to rise and growth to fall, and the median forecast says the federal funds rate will hit 4.4% this year – higher than markets were pricing in and 100 basis points higher than the Fed three months ago had forecast.
“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 with growth clouds over Europe, UK and China and the yen tanking as Japan keeps interest rates low.
The US yield curve deepened its inversion in a volatile overnight session as short-dated Treasuries sold and the longer end rallied as investors priced the chance of a ‘soft’ economic landing and braced for damage to longer-term growth.
The 2-year yield rose as high as 4.1230% from last time at 4.0848%, while the 10-year yield fell 6 basis points to 3.5120%.
“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.
HIKES AHEAD
Central bank meetings in Taiwan, Japan, the Philippines, Indonesia, the UK and Norway are due later in the day, with rate hikes expected everywhere but Japan.
Japan this week made clear its commitment to ultra-dovish policy by spending more than 2 trillion yen ($13.8 billion) over the past two days, around a 0.25% cap on yields of Japanese government bonds with a maturity of 10 years.
But even absent policy changes, there will be intense focus on Gov. Haruhiko Kuroda’s views on the yen’s precipitous slide as growing unease could portend policy changes and a dovish stance could trigger further yen selling.
The yen is down about 20% against the dollar this year and is near a 24-year low at 144.29 per dollar.
“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 traded at their lowest levels since mid-2020, with the Aussie down 0.3% to $0.6611 and the kiwi down 0.4% to $0.5831 on Thursday.
China’s yuan is on the weaker side of 7 per dollar. The US dollar index hit a 20-year high of 111.63 on the back of the Fed’s rate hike.
In commodity markets, oil slipped on concerns that higher interest rates could dampen demand. US crude futures were steady at $82.81 a barrel in early Asian trade. Brent futures were at $89.83.
Wheat rose overnight on fears of a wider and deeper war in Ukraine. ($1 = 144.3800 yen)
(editing by Sam Holmes)
