Asian shares stutter, while US dollar rally pauses

Asian stocks have edged lower as the prospect of the US central bank having to stay on its hawkish path weighed on sentiment, with investors looking to the minutes of the latest Federal Reserve meeting for further monetary policy clues.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.34 per cent to 531.85 on Tuesday, hovering around six-week lows of 529.30 it touched last week.

The index is down nearly 3 per cent this month after jumping 8.6 per cent in January as a slew of robust US economic data reinforced fears that interest rates may need to rise further and stay higher for longer.

The market is now pricing US interest rates to peak at 5.30 per cent in July and remain above 5 per cent by the end of the year, moving away from expectations of deeper rate cuts this year.

Japan’s Nikkei was 0.01 per cent higher, while Australia’s S&P/ASX 200 index fell 0.52 per cent. China’s shares were set to start flat while Hong Kong’s Hang Seng Index opened 0.1 per cent lower.

“The backdrop of inflation concerns in the US is still keeping risks of a tighter than expected monetary policy, and yields remain a key focus as US markets return later today,” strategists at Saxo Markets said.

US markets were closed on Monday due to President’s Day holiday.

The yield on 10-year Treasury notes was up 3.5 basis points to 3.863 per cent, after touching a three-month high of 3.929 per cent on Friday.

The yield on the 30-year Treasury bond was up 1 basis points to 3.899 per cent, while that of the two-year US Treasury paper, which typically moves in step with interest rate expectations, was up 5.4 basis points at 4.677 per cent.

Investor focus is firmly on the release on Wednesday of the minutes of the Fed’s latest meeting when it raised interest rates by 25 basis points.

In the currency market, the dollar hovered just shy of recent peaks as a three-week rally faded, with traders looking to European and US manufacturing data later Tuesday and Friday’s core PCE price index to help guide their next steps.

DBS currency strategist Philip Wee said the market was bracing for another surprise in the PCE data after the strong US nonfarm payrolls and CPI readings this month.

The dollar index, which measures the US currency against six other rivals, was last at 104.01, just below a six-week high of 104.67 it touched on Friday. The euro fell 0.12 per cent to $1.0669, and is set to snap four straight months of gains and end February lower.

The yen weakened 0.12 per cent to 134.40 per dollar, while sterling was last at $1.2022, down 0.13 per cent.

US crude was up 1.02 per cent at $77.12 per barrel and Brent was at $83.80, down 0.32 per cent on the day.

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