Asian shares plummet as U.S. dollar strengthens

Asian shares tumbled on Sunday as the greenback rose to multi-week highs due to the expectation that interest rates in the U.S. and Europe will peak higher than anticipated.

MSCI's broadest index of Asia-Pacific stocks, excluding Japan, fell by 0.92 percent to 511.11 after losing 2.6 percent of its value last week. Japan's benchmark index, Nikkei 225, went down by 0.11 percent to 27,423.96. Meanwhile, South Korea's Kospi shed 0.87 percent to trade at 2,402.64.

The Hang Seng index in Hong Kong fell by 0.36 percent to 19,937.21. China's blue-chip stock index, CSI 300, also slid by 0.42 percent to 4,043.84.

In Australia, the S&P/ASX 200 traded at 7,224.80 or fell by 1.12 percent. Meanwhile, in New Zealand, the S&P/NZX 50 index declined by 0.94 percent to 11,793.33.

The declines in Asian share prices were linked to the stronger dollar, which likely caused investors to invest their money elsewhere. Last week, the U.S. dollar index surged by 1.3 percent to 105.220.

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The euro weakened against the dollar, trading at $1.0548 after hitting a seven-week low of $1.0536 last Friday. The greenback also hit its nine-week high against the Japanese yen, trading at 136.40.

As previously mentioned, the market now expects interest rates in the U.S. and Europe to peak higher due to persistent inflation. In the U.S., the Fed funds futures showed the interest rates peaking at around 5.42 percent. With the current federal funds rate ranging between 4.50 and 4.75 percent, the Federal Reserve may need to increase the interest rates three more times.

Meanwhile, the European Central Bank is expected to hike its policy rate up to 3.5 percent by May. England's central bank, the Bank of England, will likely push its base rate to 4.35 percent — its highest rate since 2008.

JPMorgan head of economic research Bruce Kasman said a "greater action" by central banks would likely happen as markets still showed resilience in the face of monetary tightening.

"Demand is proving resilient in the face of tightening and lingering damage to supply from the pandemic is limiting the moderation in inflation," Kasman said. "The transmission of the rapid shift in policy still underway also raises the risk of a recession not intended by central banks."

Investors now wait for several inflation data due this week, including the ISM measures of manufacturing and services — a major indicator of economic activity within the manufacturing sector. Data for January showed an unexpected jump in manufacturing activity against the earlier estimates.

Furthermore, the Atlanta Fed's GDPNow tracker has estimated the U.S. economy to post a year-over-year gross domestic product growth of 2.7 percent in the first quarter, indicating no slowdown from the previous quarter.

Yields, commodity

The bond market in the U.S. also strengthened alongside the greenback. The two-year bond yields showed a 3.1 basis points increase to 4.836 percent. Meanwhile, the 10-year notes yielded 3.957 percent or increased slightly by 0.8 basis points.

Analysts added that the 10-year Treasury notes yielded over twice the estimated dividend yield of Wall Street's S&P 500, with significantly lower risk.

The increase in the dollar and yields pushed gold prices down. Spot gold shed 1.7 percent last week, trading at around $1,812 per ounce.

On the other hand, oil prices rose slightly as the market projected lower Russian exports and rising inventories in the U.S. Brent increased by 35 cents to trade at $83.51 a barrel. Meanwhile, U.S. crude oil gained 34 cents to trade at $76.66 a barrel.