Asian stocks, dollar dip as investors brace for Fed policy decision

Sydney — Asian shares wobbled in cautious trading on Wednesday, while the dollar sagged slightly as investors braced for the US Federal Reserve’s policy outcome later in the global day with many looking for any signs of a slowdown in future rate hikes.

MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.2% lower in early trade, as a drop in Chinese bluechips and Hong Kong shares offset an uptick in South Korea and Australia.

Japan’s Nikkei lost 0.1%.

The world’s biggest central bank is due to release its policy statement at 2pm EDT (6pm GMT) on Wednesday, with investors set to closely scrutinise the statement and comments from Fed chair Jerome Powell for any signal that policymakers are contemplating tempering the rate hikes.

Markets widely expect the Fed to raise its benchmark overnight interest rate by 75 basis points (bps) to a range of 3.75%-4.00%, the fourth such increase in a row.

However, traders are split on the size of the hike in December, with futures market pricing in a 44.5% probability of a 50 bps increase, according to CME’s Fed tool.

“We suspect chair Powell will try very hard to avoid saying anything that might be misconstrued as a signal that the inevitable step down in the size of tightening is a pivot towards the end of the tightening cycle,” said Kevin Cummins, chief US economist at NatWest Markets.

“Given that the inflation-related data have yet to show any signs of any moderation, we lean a bit more towards officials holding off from signalling they are reducing the size of hikes just yet.”

Cummins expects the Fed to step down to a 50 bps rate hike in December.

Overnight, a survey showed US job openings unexpectedly rose in September, suggesting that demand for labour remains strong. That sparked a reversal in treasury yields and lifted market bets on interest rates to above 5% next year.

Hawkish Fed stance

US stocks closed lower, with the Dow Jones Industrial Average slipping 0.24%, the S&P 500 shedding 0.41% and the Nasdaq Composite falling 0.89%.

In the currencies market, the dollar eased 0.6% against the Japanese yen to 147.32 yen in thin liquidity, moving further away from its recent high of 148.84 yen just two sessions ago. It held largely steady against other currencies.

The safe-haven greenback gave up some of the rapid gains this year in October on speculation the Fed might indicate a slowdown in its aggressive tightening campaign at its November policy meeting.