Fed's First Rate Hike in Over Three Years Lifts Asian Shares, Dollar Hits Seven-Week High
Asian shares edged up and the dollar touched a seven-week high after the Fed delivered its first rate hike in more than three years, with markets pricing in another move by December.
Asian equities edged higher on Thursday after the US Federal Reserve raised interest rates for the first time in more than three years, a move that investors read as the central bank finally getting ahead of inflation and that helped calm a global bond selloff.
The Fed lifted rates by a quarter point overnight in a unanimous decision that leaned hawkish, signalling one more increase this year. Goldman Sachs said it now expects the next hike in October, arguing that consecutive meetings are the most natural setting for the "timelier return" to the 2% inflation target that the committee described. The bank added that further increases are possible but not its base case.
Futures imply a 50% chance the Fed could follow with a second hike as soon as next month, and a total of three increases have been priced in for this tightening cycle.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.4%, while Japan's Nikkei gained 0.5%. Chinese blue-chips slipped 0.4% and Hong Kong's Hang Seng fell 0.9%. Nasdaq futures gained 0.6% and S&P 500 futures bounced 0.5%, following small declines on Wall Street.
The Treasury yield curve bear flattened, with short-dated maturities taking the strain while long bonds found relief. Two-year yields held at 4.7145% after spiking 6 basis points overnight to their highest since July 2024, lifting the dollar to a seven-week high against major peers including the yen and euro. The dollar index was last at 100.33 after surging 0.7% overnight.
The benchmark 10-year yield paused at 4.9917%, hovering below the key 5% level, while 30-year yields eased 2 basis points to 5.3328%, pulling further away from a 19-year high of 5.401%. ING's Padhraic Garvey said the moderate fall in inflation expectations telegraphed market approval of the hike as an inflation-containment measure, but warned it would not rescue the back end of the curve, identifying 5.25% as the next target for the 10-year yield.
Commodities felt the pinch. Brent crude futures slipped 0.7% to $105.05 a barrel after falling 2.7% overnight, as Saudi Arabia was reportedly offering crude cargoes through Oman, easing some concerns about Middle East supply disruption. Gold showed resilience, rising 1% to $4,305 an ounce and offsetting a 0.7% fall overnight.
Attention now turns to the Bank of England, which is widely expected to hold rates steady later on Thursday, though investors will watch for any hint that high energy prices could force a hike in November. The Bank of Japan, by contrast, is all but certain to raise interest rates on Friday.