SINGAPORE: Asian shares inched higher while the dollar was pinned to one-year lows on sterling and the euro on Thursday as Federal Reserve minutes showed policymakers were ready to start cutting US interest rates.
The minutes said the “vast majority” felt that if data came in as expected, a September cut was likely to be appropriate and in response US stocks rose, bonds rallied and the dollar fell.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2% in early trade and Japan’s Nikkei rose 1%. Hong Kong’s Hang Seng was up 0.7%.
The euro stood at $1.1151 and traded as high as $1.1173 overnight, its highest since the middle of last year, above chart resistance at $1.1139 and with the way open to the 2022 high around $1.1276. Sterling bought $1.3096 and hit a more than one-year high of $1.3119 overnight.
“The unequivocal signal from the (Fed) minutes has been the catalyst for the latest leg down in the US dollar,” said National Australia Bank’s head of currency strategy, Ray Attrill.
“It is likely that the break above $1.30 on cable looks sustainable and similarly for the euro…we’re talking about a potentially a $1.10-$1.15 range in coming weeks,” he said.
Checks on the dollar’s weakness may come from US jobs data on Sept. 6 or even purchasing managers index (PMI) data due later today if it confounds market bets on interest rate cuts, or shows softness in Europe that weighs on the euro, he said.
Japan’s flash manufacturing purchasing managers’ index (PMI) survey showed activity shrinking, though barely, and services expanding.
Asia shares hit one-month high on bets for dovish Fed
Interest rate futures markets have fully priced a 25 basis point rate cut in the US next month, with a 1/3 chance of a 50 bp cut and more than 200 bps of cuts by July 2025.
Treasuries rallied overnight on the Fed minutes and a large - although expected - downward preliminary revision to US hiring numbers over the past year.
Ten-year yields were broadly steady at 3.81% on Thursday in Asia and two-year yields held at 3.94%.
US and European equity futures were broadly flat and commodities sounded a note of caution.
Brent crude futures have slid nearly 6% through August so far at $76.04 a barrel and are close to testing the year’s lows as swelling US crude stocks and a weakening demand outlook in China have raised pessimism.
“Soft landings are the exception not the rule and the first 200 days following the first rate cut tend to be challenging for equities, because it signals a deteriorating growth and profits environment,” said Nick Ferres, CIO at Vantage Point Asset Management in Singapore.
The weak dollar kept gold above $2,500 an ounce.
Shares in Australian miner Whitehaven Coal jumped 8% after it announced the sale of a $1 billion stake in its Blackwater mine in Queensland to Japanese steelmakers.
South Korea’s central bank left interest rates on hold, as expected, but it’s laying the groundwork for cuts as it downgraded forecasts for growth and inflation.
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