Asian stocks hit a two-year low on Thursday as the prospect of US interest rates rising further and faster than anticipated investors led to the dollar going up to a new two-decade high.
The Federal ReserveFederal Reserve raised its benchmark rate by 75 basis points on Wednesday, the third such rise in a row, and officials predict that rates will hit 4.4% this year - higher than markets had priced in before the meeting and 100 bps more than the Fed projected three months ago.
Short-dated bonds were sold off and Wall Street fell overnight, with the moves continuing into the Asia session.
After Russia mobilised reservists for the first time since World War II, the euro fell to a 20 year low of $0.9807, amid growing concerns about an escalation in the war in Ukraine.
The dollar index, which is up 2% this week and almost 17% this year, has gone up 0.2% to a new 20 year high of 111.72. Gold fell 1%. S&P 500 futures ESc 1 decreased by 0.8% and European futures STXEc 1 dropped 2%.
The pound hit a 37 year low and the Aussie, kiwi, Canadian and Singapore dollar hit two-year lows. China's yuan hit a two-year low and the yen hovered near a 24 year low as investors waited for a Bank of Japan meeting.
The MSCI's broadest index of Asia-Pacific shares outside Japan dropped 1.4% to its lowest since May 2020. Japan's Nikkei fell 1% to a two-month low.
Sally Auld, chief investment officer at wealth manager JB Were, said the Fed is not going to stop any time soon, and there's going to be an extended period of restrictive monetary policy for at least the next year or so.
She cited growth clouds over Europe, Britain and China and the yen weakness as Japan holds interest rates low.
The US yield curve has deepened its inversion with short-end Treasuries sold and the longer end rallying as investors priced out the chance of a soft economic landing and braced for damage to longer-run growth.
The two-year yield went up as high as 4.1320% in Asia while the 10 year yield was 3.5593%.
The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer, Jerome Powell, Fed Chair, told reporters after the rate hike announcement.
With hikes expected in Japan, the Philippines, Indonesia, Japan, Taiwan, Britain and Norway, central bank meetings are due later in the day.
Japan has driven home its commitment to ultra-dovish monetary policy by spending more than 2 trillion yen $13.8 billion over the past two days to hold a 0.25% ceiling on the 10 year Japanese government bond yield.
Even if there is no policy change, there will be a focus on Governor Haruhiko Kuroda's views on the yen's precipitous slide, as growing discomfort could hint at policy changes and dovishness could cause further yen selling.
The yen is near a 24 year low, down about 20% on the dollar this year and 144.46 per dollar is close to a 20 year low.
In a note to clients, Rabobank strategist Jane Foley said that the risk of USD JPY is going to go up to 147 in the coming months.
The Australian and New Zealand dollars are at their lowest since mid-2020, with the Aussie down 0.7% on Thursday at $0.6586 and the kiwi down 0.6% at $0.5816.
In commodity markets, oil fell on fear that higher interest rates will crimp demand. US crude futures were steady in early Asia trade at $83.43 a barrel. The futures of the pound were $90.39.
Wheat went up overnight because of fears of a deeper war in Ukraine.