Asian shares fell sharply on Wednesday, while the dollar advanced after hawkish comments from Federal Reserve Chair Jerome Powell raised the possibility of the U.S. central bank returning to large rate hikes to tackle sticky inflation.
The Fed will likely need to raise interest rates more than expected in response to recent strong data, Powell said on the first day of his semi-annual, two-day monetary policy testimony before Congress.
The hawkish comments from Powell sent U.S. stocks sharply lower, with the risk-off mood continuing in Asian trade.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 1.45 per cent lower, while Australia’s S&P/ASX 200 index fell 0.70 per cent. Japan’s Nikkei rose 0.10 per cent.
China shares fell 0.33 per cent, while Hong Kong’s Hang Seng Index slid 1.4 per cent.
After a series of jumbo hikes last year, the Fed raised rates by 25 basis points in its last two meetings but resilient economic data since start of this year had stoked fears the U.S. central bank might return to larger rate rises.
Those fears were realized when Powell said: “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
The spotlight will now be on Friday’s U.S. payrolls data and next week’s inflation figures that will dictate further moves from the Fed.
In the currency market, the dollar was at three month high, with the euro up 0.01 per cent to $1.0548.
The Japanese yen weakened 0.15 per cent to 137.33 per dollar, while sterling was last trading at $1.1834, up 0.06 per cent.
