Asian shares rise, dollar wobbles as US inflation data support Fed pause bets. Asian equities rallied, and the dollar fell on Wednesday after falling U.S. inflation confirmed expectations that the Federal Reserve would miss a raise later. However, uncertainty persisted about future rate hikes.
The much-watched U.S. CPI report showed prices rose 0.1% in May. Consumer prices grew 4%, down from April’s 4.9%.
That led traders to strengthen views of a Fed rate pause to 91.9% after it closes a two-day policy meeting on Wednesday. Still, the still-strong underlying price pressures suggest an over 60% probability the central bank might restart raises in July, according to CME Group’s FedWatch Tool.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.2% in early regional trade after rising 1.1% in the prior session to the highest in two months.
Tokyo’s Nikkei (.N225) surged 1% to a 33-year high in anticipation of sustained ultra-loose Bank of Japan policy.
Regionally, China’s accommodative policy boosted sentiment. China’s blue chips (.CSI300) climbed 0.5%, and Hong Kong’s Hang Seng Index (.HSI) 0.4%.
After rallying overnight to its best closing levels in 14 months on weaker U.S. inflation figures, S&P 500 and Nasdaq futures were flat.
“While the soft headline inflation print gives the Fed the go-ahead to pause its rate hiking cycle on Thursday, sticky core inflation will keep the Fed’s hawkish trigger finger hovering over the rate hike button in the months ahead,” said I.G. market analyst Tony Sycamore.
Two-year Treasury yields rose 4.7070% overnight, the highest since March, before falling to 4.6556% in Asian hours, possibly reflecting such concerns.
The benchmark 10-year yield reached 3.8450%, the highest in 2-1/2 weeks. Last, 3.8075%.
Markets would also watch Fed Chair Jerome Powell’s post-policy press conference and the dot plot for any rises.
Inflation pressures elsewhere are unnerving markets. U.K. wage growth accelerated in the three months to April, complicating the Bank of England’s monetary policy decision next week.
As investors awaited Thursday’s ECB rate announcement, short-term German rates rose to a 3-month high. It will boost rates twice in July before pausing for the year.
On Wednesday, the U.S. dollar traded at 103.26 against its major rivals, slightly above its three-week low from the previous day.
Sterling finished at $1.2613, nearing a one-month high of $1.2625, while the euro was at $1.0794 after touching a three-week high of $1.0823 overnight.
Although early trade was lower, China’s policy rate drop boosted oil prices by 3%. Brent crude prices declined 0.4% to $74.02, while U.S. crude futures fell 0.5% to $69.12. Gold rose to $1,945.96 per ounce.
