Asian shares reached their lowest point of the year on Tuesday due to concerns over higher U.S. interest rates. The MSCI’s index of Asia-Pacific shares outside Japan fell 1.6% to its lowest level since November 2022, while Japan’s Nikkei dropped 1.8% and Hong Kong’s Hang Seng Index sunk 3%. European stocks were also expected to open lower. U.S. Federal Reserve officials have stated that monetary policy will need to stay restrictive for a prolonged period to bring inflation down to the central bank’s target of 2%. The hawkish rhetoric from the Fed officials has sparked a debate over another potential rate hike this year.
Australia’s Reserve Bank held interest rates steady on Tuesday for a fourth month but hinted at the possibility of future tightening to curb inflation. The Australian dollar dropped 0.77% to $0.631 following the central bank’s decision. The focus in the foreign exchange market continues to be on the Japanese yen, as the currency approaches the 150 per dollar mark. This level is speculated to potentially trigger intervention from the Japanese authorities, as they have done in the past when the yen weakened past 145 per dollar. Japanese Finance Minister Shunichi Suzuki warned against speculative moves and stated that authorities were closely monitoring the currency market and prepared to respond.
The U.S. dollar index rose 0.168% to a fresh 10-month peak, and the yield on 10-year Treasury notes reached its highest level since October 2007. This rise in yields was driven by reduced demand for U.S. government debt after an agreement was reached to prevent a partial government shutdown. U.S. crude fell 0.84%, while Brent dropped 1.05% on the day. Spot gold and U.S. gold futures also declined. Overall, market sentiment remains cautious due to concerns over higher U.S. interest rates and the potential for further rate hikes in the future.