Dollar rises and global stocks fall after Federal Reserve signals slower pace of rate cuts

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The dollar rose to its highest level in more than two years and global stocks fell on Thursday after the US Federal Reserve rattled markets by signaling a slower pace of interest rate cuts next year.

Asian currencies, including the Chinese renminbi and the Japanese yen, fell sharply against the dollar, and the South Korean won sank to its lowest level in 15 years. The region’s benchmark stock indices opened lower after a sharp drop in Wall Street stocks the previous day.

Futures contracts suggested Europe was set to follow Asia and the United States lower, with contracts tracking the FTSE 100 falling more than 1.1 percent and those for the Euro Stoxx 50 falling 1.6 percent.

The moves come after the Federal Reserve cut interest rates by a quarter percentage point on Wednesday but gave projections pointing to fewer rate cuts than previously expected for 2025, underscoring concerns about persistent inflation. .

The indication that U.S. interest rates could stay high for longer, absorbing capital from other markets, was a blow to Asian and emerging markets, where investors had hoped for a quick return to lower rates.

“Markets were surprised by the perception of Fed hawkishness,” said Mitul Kotecha, head of emerging markets macro strategy at Barclays in Singapore. “For Asia, which has struggled in terms of relatively lower yields and weakness in China adding pressure to the region, (today’s declines) are a culmination of those factors.”

The dollar, which rose 1 percent on Wednesday against a basket of currencies that includes the yen and pound, rose another 0.1 percent on Thursday.

The benchmark 10-year Treasury yield rose another 0.03 percentage point to 4.52 percent. The rate-sensitive two-year yield was steady at 4.35 percent after rising 0.11 percentage point on Wednesday.

The Indian rupee hit a record low of Rs 85.1 against the dollar, while the Chinese renminbi hovered around Rs 7.3.

Asia-Pacific stocks fell on Thursday, with Australia’s S&P/ASX 200 down 1.7 percent, South Korea’s Kospi down 1.9 percent and India’s Sensex down 1.2 percent.

Hong Kong’s Hang Seng Index fell 0.3 percent, while mainland-listed stocks recovered after opening lower.

Japan’s currency-sensitive Nikkei 225 index fell 0.6 percent after the Bank of Japan opted on Thursday to keep rates steady.

The US Federal Reserve’s “dot plot” median now suggests that policymakers are only projecting two quarter-point rate cuts in 2025, down from four forecast in September.

“Given the risk of a resurgence in inflation due to potential trade tariffs and a slowdown in immigration that has been cooling pressure on the labor market, market expectations of just two more cuts in 2025 now appear reasonable,” Jean wrote Boivin, director of the BlackRock Investment Institute. , in a note.