Asia stocks rise, dollar sags as Fed chair sets stage for rate cut
Asian stocks rose and the dollar sagged on Thursday after Federal Reserve Chair Jerome Powell reinforced prospects of a U.S. interest rate cut later this month.
In an appearance before his congressional overseers on Wednesday, Powell confirmed that the US economy is still under threat from disappointing factory activity, tame inflation and a simmering trade war.
Powell said the central bank stands ready to “act as appropriate”.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.2 percent, while Japan’s Nikkei added 0.15 percent.
South Korea’s KOSPI climbed 0.7 percent. Australian stocks were steady.
US stocks ended higher on Wednesday and the S&P 500 briefly crossed the 3,000-point mark for the first time following Powell’s remarks.
“The markets had hoped for Powell to express dovish views and they got what they wanted,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui DS Asset Management.
“The focus going forward is US data, such as tonight’s CPI, and whether the economy warrants a 50 basis point rate cut this month.”
A strong June US jobs report released earlier this month had curbed market expectations that the Fed could lower rates by 50 basis points (bps), and the markets had viewed a 25 bps cut as a more likely option.
But the Fed chair’s cautious stance on the world’s largest economy helped revive views of a chance of heftier easing at the next Fed policy meeting on July 30-31.
The chance of a 50 bps cut rose to 27.6 percent from 3.3 percent on Tuesday, according to CME Group’s FedWatch tool.
The dollar index against a basket of six major currencies stood at 97.055 after falling 0.4 percent overnight, when it pulled back from a three-week peak of 97.588 in the wake of Powell’s comments.
The greenback was down 0.15 percent at 108.320 yen, forced off a six-week high of 108.990 scaled the previous day.
The euro nudged up 0.1 percent to USD 1.1259 after gaining 0.4 percent on Wednesday.
The Australian dollar was steady at USD 0.6961 following an overnight rise of 0.5 percent against the broadly weaker dollar. The surge helped the Aussie pull away from a 2-1/2-week trough of USD 0.6910.
The 10-year US Treasury yield was at 2.052 percent after dropping on Wednesday from a three-week high of 2.113 percent following the Fed chair’s congressional testimony.
In commodities, US crude oil futures extended the previous day’s large gains to touch USD 60.63 per barrel, their highest since May 23.
The contract had surged 4.5 percent on Wednesday after US crude inventories shrank and as major producers cut nearly a third of offshore Gulf of Mexico production ahead of an expected storm.