Global stocks and Asian currencies tumbled against the US dollar on worries that the US may hike the rate again to as high as 6.5 percent instead of cutting and central banks may also delay easing plans amid inflation concern and geopolitical tension.
The combination of strong US growth and sticky inflation is raising the odds the US Federal Reserve will hike rather than cut interest rates, bringing borrowing costs to as high as 6.5 percent next year, according to UBS Group strategists. While the bank’s base case is for two rate cuts this year, UBS now sees a growing possibility that inflation fails to decline to the Fed’s target, spurring a pivot back to hikes.
Meanwhile, central banks across Asia are likely to begin cutting interest rates later in the year – if at all, according to economists at Morgan Stanley, as the Fed delays its own policy easing.
Also, Deutsche Bank and Morgan Stanley both trimmed their forecasts for European Central Bank borrowing costs, predicting now only three moves this year.
This came as Asian stocks dropped yesterday, with Hong Kong’s benchmark index falling 351 points to close at 16,248 points. European stocks also plummeted into the red.
In money markets, the yuan hit a five-month low per US dollar although state-owned banks actively sold a large amount of US dollars to support the Chinese currency, according to traders.
A global index of Asian currencies also dropped against the greenback, with the Indonesian rupiah, Indian rupee, and South Korean won among the hardest hit.
The yen remained under pressure and traders see 160 as the next potential milestone for the currency that’s already sunk to a 34-year low against the US dollar.
Hong Kong United Times丨香港聯合時報丨HKUT 