Asian shares fall as Fed rate hike rally fizzles

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SHANGHAI: Asian stocks dipped on Thursday (Jun 16), but the dollar found its footing as investors digested the implications of soaring inflation and an aggressive policy tightening forecast from global central banks.

The US Federal Reserve approved its biggest interest rate boost since 1994 on Wednesday, raising the target federal funds rate by 75 basis points to a range of 1.5 percent to 1.75 percent. Fed officials anticipate further gradual increases this year, with a federal funds rate of 3.4% by year’s end.

While market investors initially applauded the widely anticipated action, increasing concern eroded gains throughout the trading day.

Tokyo, Seoul, Wellington, Manila, and Jakarta kept their ground, but Shanghai, Singapore, Sydney, Taipei, Mumbai, and Bangkok all fell short.

Hong Kong led the losses, with the Hang Seng Index falling 2.2% following a strong rise on Wednesday and as investors considered a rapid rate hike in the city due to its monetary policy ties to the United States.

The dollar recovered its footing in the Asian session after falling from a 20-year high following the Fed meeting.

The global dollar index, which measures the US currency against a basket of six peers, was recently up 0.5% at 105.29.

To add to the gloom, the Swiss National Bank unexpectedly boosted its policy interest rate by 50 basis points, pushing the safe-haven franc significantly higher.

The Fed’s 0.75 percentage point hike was widely anticipated after statistics on Friday showed US inflation at its highest level since 1981, due to supply chain disruptions caused by the Ukraine crisis.

Lowering inflation is “important,” according to Fed Chair Jerome Powell, and officials “have both the tools we need and the resolve it will take to restore price stability on behalf of American families.”

He emphasized that the goal is to accomplish this without destabilizing the US economy, but he noted that there is always the risk of going too far.

“(Inflation expectations) are becoming overly optimistic. That, I believe, is one of the reasons Powell wanted to do a 75… And I believe they will return in July “said Joseph Capurso, Commonwealth Bank of Australia’s head of international economics.

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