The dollar fell on Wednesday as investors awaited the U.S. Federal Reserve’s policy announcement later in the day, with many looking for signals of a pause in future rate hikes. Asian equities rose on Wednesday, powered by Chinese stocks on reopened prospects.
With the Euro Stoxx 50 futures for the entire area up 0.5%, European markets appeared poised to maintain their cautious optimism. The Nasdaq futures increased by 0.4% while the U.S. S&P 500 futures grew by 0.3%.
The policy statement from the largest central bank in the world is scheduled to be released on Wednesday at 2 p.m. EDT (1800 GMT). Investors will keenly monitor the document and any remarks made by Fed Chair Jerome Powell for any indication that policymakers are considering slowing rate increases.
Related: Asian stocks rose before the Fed’s rate decision.
Market participants anticipate that the Fed will boost its benchmark overnight interest rate by 75 basis points (bps), to a range of 3.75% to 4.00%, marking the fourth consecutive hike.
The futures market is pricing in a 44.5% probability of a 50-bps increase, according to CME’s Fed tool, although traders remain divided on the magnitude of the hike in December.
NatWest Markets’ chief U.S. economist, Kevin Cummins (NYSE:CMI), predicted that Chair Powell would make every effort to avoid saying anything that could be interpreted as indicating that the inevitable slowing in the pace of tightening signals the end of the tightening cycle.
“Given that inflation-related indicators have yet to show any signs of any slowdown, we tilt a bit more toward authorities’ delaying signals that they are decreasing the magnitude of hikes just yet,” the authors write.
According to Cummins, the Fed will reduce its increase in December to 50 basis points.
After stumbling early in the day, the MSCI’s broadest index of Asia-Pacific equities outside of Japan increased by 0.8%, with Hong Kong stocks and Chinese bluechips recovering losses on expectations that China will relax its rigorous zero-COVID regulations.
Following last month’s vicious selling, a letter that was circulating on social media on Tuesday claimed that China was contemplating a reopening of severe COVID limits in March. However, quarantines and economic disruptions in China are on the rise once more, and some analysts predict that there won’t be any significant regulatory changes until well into 2019 or possibly 2024.
Wednesday’s investment meeting in Hong Kong aims to restore the city’s reputation as the financial centre of the region after COVID devastated it, with Chief Executive John Lee promising that efforts to eliminate COVID limits will continue.
Chinese decision-makers welcomed foreign investors to Hong Kong and reiterated their support for the territory. After soaring by a huge 5.2% in the previous session, the Hang Seng index increased by 2.5%.
The Nikkei in Japan fell 0.1%.
A survey released overnight revealed that U.S. job postings surprisingly increased in September, indicating that the labour market is still in high demand despite rate increases. Treasury yields reversed course as a result, and market predictions for interest rates in 2019 increased to above 5%.
U.S. stocks ended the day lower, with the Nasdaq Composite down 0.89%, the S&P 500 down 0.41%, and the Dow Jones Industrial Average down 0.24%.
Related: Asian stocks go up as the Fed meeting nears, but China lags behind.
The dollar weakened 0.2% versus a basket of major currencies on the currency exchange market. Against the Japanese yen, it decreased 0.5% to 147.6 yen on concerns about government intervention and low liquidity. [FRX/]
A change to the central bank’s yield curve control strategy, which has exacerbated the yen’s decline, may be considered in the future, according to Bank of Japan Governor Haruhiko Kuroda.
On the belief that the Fed might be signalling a halt in its ferocious tightening drive, the safe-haven dollar gave up some of its quick gains this year in October.
According to a Reuters survey of currency strategists, the dollar’s decline in the foreign exchange markets is only temporary and the currency still has the power to recoup or surpass its most recent highs and continue its unrelenting rise.
According to the Fed, a U.S. recession is still preferable to failing to address persistent pricing pressures, according to Chris Weston, head of research at Pepperstone.
“My own judgement is that the risks are skewed for a hawkish reaction—USD higher, but I will acknowledge that the rate movements show the market is largely positioned for this outcome,” the author said.
Following a significant overnight decline, U.S. Treasury rates were fairly stable on Wednesday due to the unexpectedly strong jobs report.
While the yield on two-year notes decreased by 4 basis points to 4.5157%, the yield on benchmark ten-year notes remained stable at 4.0422%.
Oil prices increased as a result of industry data revealing an unexpected decrease in U.S. crude stockpiles, which may indicate that demand is holding steady. [O/R]
While Brent crude prices increased 1.2% to $95.82 per barrel, U.S. crude oil futures increased 1.4% to $89.65 per barrel.
Gold’s market price increased marginally to trade at $1649.72 for an ounce.
