Ankur Banerjee
SINGAPORE (Reuters) – Asian shares rose on Wednesday as comments from Federal Reserve Chairman Powell reinforced expectations that a U.S. interest rate cut was not far away, while the yen remained near levels last seen in 1986, keeping traders wary of Japanese intervention. .
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.26%, while rising 0.49%, approaching a record high hit in March.
Powell said on Tuesday that the United States was back on a “deflationary path,” though he warned that policymakers would need more data before considering a rate cut.
Powell’s comments caused U.S. Treasury yields to fall 4.3 basis points overnight, with the 10-year Treasury yield holding steady at 4.433% in Asia on Wednesday, sending the dollar lower. Investors are also weighing data showing tightness in the U.S. labor market.
Michael Brown, senior research strategist at Pepperstone, said Powell’s comments sounded slightly more dovish than recent comments.
“Such comments appear to further open the door to a rate cut in September, especially since Powell also flagged the risk of it being too late for a first rate cut.”
Traders now see a 69% chance of the Fed cutting rates in September and as many as two cuts this year, a far cry from the more than 150 basis points of easing expected at the beginning of the year.
Chinese stocks fell in early trading, with the blue-chip CSI 300 index down 0.27%. Hong Kong rose 0.3%.
Data showed that China’s service sector activity expanded at the slowest pace in eight months, dragged down by a slowdown in new orders, and confidence hit a four-year low in June, indicating the need for more economic stimulus.
Interest rate cut hopes
The prospect of imminent U.S. interest rate cuts limited the dollar’s gains, with the greenback holding steady at 105.71 against six currencies.
The yen weakened slightly against the dollar to 161.63, close to Tuesday’s 38-year low of 161.745.
Affected by the huge interest rate differential between the United States and Japan, the yen has fallen more than 12% against the dollar this year.
Traders have been looking for signs that Japanese authorities are intervening in currency markets to shore up the weakening yen, with some analysts saying the line could be further removed than current levels.
“We suspect interest in the pair has faded as the threat of intervention looms around the 164-165 level,” said Alex Loo, macro strategist at TD Securities in Singapore.
Meanwhile, the euro last rose to $1.07455, just below the two-week high hit on Monday, as opponents of France’s National Rally (RN) stepped up efforts to prevent the far-right party from taking power and more candidates agreed to withdraw from the election. A runoff election was held to avoid splitting the anti-RN vote.
Tuesday’s data also showed that euro zone inflation eased last month, but key services components remained elevated, which may raise concerns among some policymakers that domestic price pressures may remain elevated.
The pound was little changed at $1.2685 ahead of Thursday’s UK election, in which the opposition Labor Party is widely expected to win a landslide victory.
In commodities, oil prices were higher as U.S. industrial data boosted hopes for solid fuel demand during the summer driving season in the top oil consumer. [O/R]
Futures rose 0.44% to $86.62 a barrel, while U.S. West Texas Intermediate crude futures rose 0.41% to $83.15 a barrel.
