Asian equities turned cautious on Thursday after the U.S. Federal Reserve raised interest rates for the second time this year, as was widely expected by markets.
Despite inflation coming in below the Fed’s target, the central bank said it would raise the benchmark interest rate by 25 basis points. The Fed also provided greater detail about how it would unwind its massive balance sheet.
Markets regarded the Fed’s increase in interest rates as a dovish hike. The Fed’s characterization of the state of the economy as “slightly softer” and details regarding the unwind in the balance sheet likely took pressure off the central bank to tighten further, ANZ economist Giulia Lavinia Specchia said in a note.
Going forward, markets appeared doubtful that the Fed will stick to its forecast of three rate hikes this year.
“Traders clearly doubt the inflation outlook espoused by the Fed … With little traction evident in wages or inflation, the markets are expressing skepticism about an ongoing recovery,” CMC Markets Chief Market Strategist Michael McCarthy said.
The dollar index, which tracks the dollar against a basket of major currencies, continued to trade below the 97 handle. The dollar index traded at 96.908 at 12:00 p.m. HK/SIN. Against the yen, the dollar was mostly flat, trading at 109.58 compared to levels around 109.59 seen in the previous session.
Down Under, jobs data for May beat expectations, with 42,000 new jobs created compared to the 10,000 expected. The Australian dollar jumped as high as $0.7625 following the news, compared to levels around $0.7587 seen earlier.
In New Zealand, first quarter GDP rose 0.5 percent, missing an expected gain of 0.7 percent on quarter, and at an annual pace of 2.5 percent, below the 2.7 percent gain seen.
Economic data expected through the course of the trading session includes China foreign direct investment numbers for the month of May at 3:00 p.m. HK/SIN.
In central bank news, the Bank of Japan begins a two-day meeting today. The Bank of England will make its rate decision at 7:00 p.m. HK/SIN.
On Wall Street, stocks closed mixed after the Fed’s announcement, with the Dow Jones industrial average gaining 0.22 percent or 46.09 points to close at 21,374.56.
Asian markets turn cautious after Fed raises interest rates – CNBC