According to FX168 Financial News (Asia-Pacific), following the Federal Reserve's warning about slowing interest rate cuts next year, Asian stock markets fell on Thursday (December 19), the dollar remained close to a two-year high, and the yen dropped after the Bank of Japan decided to keep interest rates unchanged.
The Federal Reserve's hawkish shift caused Wall Street to decline, and Asian stock markets followed suit on Thursday, with the MSCI Asia-Pacific (excluding Japan) stock index dropping by 1.6%. The **** stock market fell by 1.2%, and the Australian stock market decreased by nearly 2%. #Decision Analysis#
The Dow Jones Industrial Average plummeted more than 1000 points on Wednesday. This pessimistic sentiment is expected to spread to Europe, with Europe's Stoxx 50 futures down by 1.5%, Germany's DAX futures down by 1.2%, and the FTSE futures down by 1%.
As expected, the Bank of Japan kept interest rates unchanged, causing the yen to fall to 155.48 against the dollar, the lowest level in a month. Yen trading hovered around 155.3, close to its weakest range this year, pressured by a strong dollar and significant interest rate differences. The yen has dropped more than 8% against the dollar in 2024 and could face its fourth consecutive year of depreciation.
Investor focus will shift to the speech of Bank of Japan Governor Kazuo Ueda to understand the timing of the next interest rate hike and the magnitude of hikes next year. Currently, traders expect the Bank of Japan may raise rates by 46 basis points by the end of 2025.
Kazuo Ueda is expected to hold a press conference at 14:30 HKT on Thursday to explain this decision. Bank of Japan Board of Directors member Naoki Tamura proposed a 25 basis point increase to 0.5%, citing accumulating inflation risks, but his proposal was not approved.
The Federal Reserve's hawkish dot plot provides an option for the Bank of Japan to raise rates, and there is an opposing opinion suggesting a 25 basis point increase, making it look likely that a rate hike could happen early in 2025, according to Ben Bennett, Asia-Pacific investment strategist at Legal & General Investment Management.
The policy decisions of the Federal Reserve and the Bank of Japan highlight the challenges facing the global economy, particularly with the USA, as the largest economy, experiencing policy uncertainty with the impending inauguration of President-elect Donald Trump.
The Federal Reserve lowered interest rates as expected on Wednesday, but Jerome Powell made it clear that future policies will be more cautious, leading to severe market fluctuations. Federal Reserve officials now expect only two more rate cuts of 25 basis points by the end of 2025, which is a reduction of half a percentage point from the expectations in September.
"The Federal Reserve is more hawkish than we expected, but today’s change in policy guidance aligns with our expectation of a long pause by the Fed in early 2025," said Prashant Newnaha, rates strategist at TD Securities Asia Pacific. "The most surprising change is in inflation expectations, reinforcing the return to a 'long period of high rates' policy."
Changes in expectations for rate cuts by the Federal Reserve have driven the USD higher. This index measures the value of the dollar against six major currencies, rising to its highest level since November 2022 on Wednesday. On Thursday, the USD was trading at 108.08.
The British Pound remained stable after the Federal Reserve's decision, trading at 1.258 dollars, as the market awaits the subsequent policy decision from the Bank of England, which is expected to maintain interest rates despite clear signs of an economic slowdown.
The benchmark 10-year U.S. Treasury yield reached a new high of 4.524% on Wednesday, the highest in seven months, and finally traded at 4.514%.
After Powell stated that the Federal Reserve does not intend to engage in any efforts to acquire large amounts of Bitcoin, Bitcoin briefly fell below 0.1 million dollars.
Gold rose by 0.8%, trading around 2610 dollars, while oil prices fell due to concerns over demand.