Asian Markets Rise, Dollar Falls as Traders Appreciate Policy Tightening

Asian Markets Rise, Dollar Falls as Traders Appreciate Policy Tightening

Wall Street. — © AFP

Asian markets rallied on Friday after a strong performance on Wall Street as investors mostly look to further interest rate hikes to curb runaway inflation.

The more confident sentiment was reflected in the dollar’s decline, which rose to multi-year highs against its major rivals in recent weeks due to the Federal Reserve’s hawkish bias towards monetary tightening.

The dollar’s softness came even after Fed chief Jerome Powell reaffirmed the bank’s determination to keep raising rates to fight prices, even at the cost of economic growth.

His warning that “we need to act decisively and now” followed comments from his deputy, Lael Brainard, who said politicians would raise borrowing costs for as long as it takes to bring inflation down from a 40-year high.

However, Wall Street closed higher, setting markets up for a weekly gain and easing some pressure after a huge loss in August on fears that higher rates would trigger a recession.

“Markets have finally come to terms with the fact that rates will almost certainly rise by 75 basis points when the Fed makes its next decision (September 21),” Advisors Capital Management’s Joanne Feeney told Bloomberg TV.

“What we’re seeing is some recognition that maybe the sell-off we saw in the second half of August was a little overblown,” she said.

New York’s growth has trickled down to Asia, where Hong Kong is nearly three percent closer to the long weekend, while Tokyo, Sydney, Shanghai, Singapore, Wellington, Mumbai, Manila and Bangkok also rose well.

London, Paris and Frankfurt were also stronger in the open.

OANDA’s Edward Moya said traders cheered when “Powell stuck to his hawkish scenario and reaffirmed his commitment to tighten policy until inflation returns to its target.

“Wall Street expects some easing in price pressures following next week’s inflation report, but that should not undermine the current 75 basis point pace of tightening.”

There was also some rejoicing at the news that China’s inflation eased slightly in August, giving the government more room to take more action to support the economy, although the recovery remains hostage to the leaders’ strict coronavirus strategy of blocking growth.

In currency markets, the euro held well above parity with the dollar after the European Central Bank announced its own 75 basis point hike as it warned inflation was ‘too high’ and likely to remain above target for ‘an extended period’ “.

The head of the ECB, Christine Lagarde, suggested that the policy will be tightened for some time.

The yen strengthened as officials began to say that the rate was approaching a 32-year low against the US dollar.

The surge came after Bank of Japan Governor Haruhiko Kuroda met with Prime Minister Fumio Kishida on Friday, after which he said that “a quick weakening of the yen is undesirable.”

The talks were used as a sign of intention to support the currency if it continues to weaken. ion upcoming.

However, the Japanese division is expected to suffer even bigger losses as the Bank of Japan sticks to its ultra-loose policy despite the Fed’s increasingly hawkish moves.

Oil prices rose after rising on Thursday, although they remain under pressure from ongoing concerns about the impact on demand of a possible recession caused by higher rates and inflation.

The weakness of China’s economy and lockdowns in major cities have also raised concerns among commodity traders.

Reports that President Joe Biden is considering releasing more oil from US strategic reserves have also put pressure on the market.

Washington is concerned that prices could rise sharply in December when European Union sanctions on supplies from Russia come into effect.

– Key figures around 07:10 GMT –

Tokyo – Nikkei 225: up 0.5% to 28,214.75 (close)

Hong Kong – Hang Seng Index: up 2.7% to 19,368.22.

Shanghai – composite: up 0.8% to 3262.05 (close)

London – FTSE 100: up 0.4% to 7,292.70 (close)

EUR/USD: rose to $1.0099 from $1.0001 on Thursday.

Pound/Dollar: DOWN to $1.1619 from $1.1500.

Euro/pound: up 86.95p from 86.93p.

Dollar/yen: DOWN to 142.31 yen from 144.07 yen.

West Texas Intermediate: up 0.1% to $83.62 per barrel

Brent North Sea oil: up 0.2% to $89.36 a barrel

New York-Dow: up 0.6% to 31,774.52 (close)

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