Asian markets rally, dollar plunges as traders assess policy tightening

Asian markets rallied on Friday after a strong showing on Wall Street as investors widely anticipated further interest rate hikes aimed at tackling runaway inflation.

The more confident mood was reflected in a decline in the dollar, which has surged in recent weeks to multi-decade highs against its major peers on the Federal Reserve’s hawkish tilt toward more monetary policy. strict.

The greenback’s weakness came even after Fed Chief Jerome Powell reaffirmed the bank’s determination to keep rates rising to fight prices, even at the expense of economic growth.

His warning that ‘we must act now frankly, firmly’ followed comments by his deputy Lael Brainard, who said policymakers would raise borrowing costs for as long as it takes to bring inflation down from record highs. 40 years old.

Still, Wall Street ended in positive territory, putting markets on track for a weekly gain and easing pressure after heavy losses in August caused by fears that rising rates could trigger a recession.

“Markets have finally digested the fact that rates will almost certainly rise 75 basis points in the next Fed intervention (September 21),” JoAnne Feeney, at Advisors Capital Management, told Bloomberg TV.

“What we’re seeing though is some recognition that maybe the selling we saw in the second half of August was a bit of a stretch,” she said.

New York’s rise spread to Asia, where Hong Kong added more than 2% ahead of a long weekend, while Tokyo, Sydney, Shanghai, Singapore, Wellington, Manila and Bangkok were all up.

Edward Moya of OANDA said traders cheered when “Powell stuck to his hawkish scenario and affirmed a commitment to tightening policy until inflation returns to target.

“Wall Street expects to see some easing of price pressure with next week’s inflation report, but that shouldn’t derail the current pace of 75 basis point tightening.”

The news of a slight drop in inflation in China in August also brought encouragement, which gave the government more leeway to introduce more measures to support the economy, although the recovery remains the hostage to the leaders’ strict zero-Covid strategy of blocking growth.

In foreign exchange markets, the euro was holding well above parity with the dollar after the European Central Bank announced its own 75 basis point hike, warning that inflation was “far too high” and likely to remain above target for “an extended period”.

ECB chief Christine Lagarde suggested policy would continue to be tightened for some time.

The yen was also slightly stronger, risking a 32-year low against the greenback, with senior Japanese officials hinting at possible action to limit its losses if the unit falls further.

However, it is expected to take more losses as the Bank of Japan strictly sticks to its ultra-accommodative policies despite increasingly hawkish Fed measures.

Oil prices extended Thursday’s gains even as they remain under pressure from lingering concerns about the impact on demand of possible recessions caused by rate hikes and inflation.

The weak Chinese economy and lockdowns in major cities have also raised concern among commodity traders.

Reports that President Joe Biden was planning to release more crude from US strategic reserves also weighed on the market.

Washington fears prices could skyrocket in December when European Union sanctions on Russian supplies take effect.

– Key figures around 03:20 GMT –

Tokyo – Nikkei 225: UP 0.6% to 28,219.70 (pause)

Hong Kong – Hang Seng Index: UP 2.2% to 19,269.43

Shanghai – Composite: UP 0.7% to 3,258.94

Euro/dollar: DOWN to $1.0070 from $1.0001 on Thursday

Pound/dollar: DOWN to $1.1568 vs. $1.1500

Euro/pound: UP at 87.07 pence against 86.93 pence

Dollar/yen: DOWN to 143.70 yen against 144.07 yen

West Texas Intermediate: UP 0.4% to $83.91 a barrel

North Sea Brent Crude: UP 0.7% to $89.73 a barrel

New York – Dow: UP 0.6% to 31,774.52 (closing)

London – FTSE 100: UP 0.3% to 7,262.06 (closing)

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