On Friday, Asian stocks went down while the dollar went up. This was because good economic data from the US made it more likely that interest rates would stay high for longer and the Federal Reserve would take its time cutting rates, which kept investors away from risky assets.
Breaking a four-week winning streak, MSCI's broadest index of Asia-Pacific shares outside of Japan fell 0.5% and was headed for a weekly decline of 1.0%. The Nikkei of Japan dropped 1.45%.
Early trading saw little movement in Chinese stocks, with blue-chip stocks falling by 0.05 percent as China's military began its second day of war games in the Taiwan area on Friday. The Hang Seng Index for Hong Kong dropped 0.33 percent.
Dollar rises
US jobless claims decreased on Thursday, according to data, and S&P Global's Flash PMI survey revealed that business activity grew more quickly than economists had predicted in May.
Due to the strong economic data and the hawkish minutes from the Fed's previous meeting earlier this week, traders have reduced their bets on rate cuts this year. As of right now, markets are pricing in just 35 basis points of easing in 2024, compared to initial expectations of 150 basis points of cuts.
According to the CME FedWatch tool, markets have fully factored in a rate cut in December, with a cut in September now viewed as a coin flip.
The Fed "simply does not have the capacity to provide policy accommodation," according to this week's data, according to Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.
The market and the Fed will just have to wait until there are labour market cracks to begin easing and right now there is little evidence that this is the case.
Prashant Newnaha
Even with April's slightly lower inflation reading, there is still upward pressure on prices, according to Atlanta Fed President Raphael Bostic, suggesting that the US central bank may need to hold off on cutting interest rates for longer.
Yields have increased as a result of shifting expectations regarding US interest rates; on Thursday, the benchmark US 10-year yield reached a peak of 4.498 percent, more than a week ago. Early on Friday morning in Asia, it was at 4.463%.
UCHIDA SAYS LABOR SHORTAGE IS THE KEY DRIVING FORCE TO SHIFT PRICE NORM.
— FinancialJuice (@financialjuice) May 27, 2024
The dollar index, which compares the US currency to a basket of six important rivals, has increased by almost 0.6% this week to 105.06, putting it on track for its biggest one-week gain since mid-April. The dollar has also benefited from this increase.
The rising dollar has maintained the yen's pressure. At 157.03 to the dollar, the Japanese yen was recently trading close to its three-week low of 157.19, which was touched on Thursday.
Government data released on Friday indicated that although Japan's core inflation remained comfortably above the central bank's 2.0 percent target, it slowed for the second consecutive month in April as a result of softer food inflation.
Furthermore, Bank of Japan's Governor Kazuo Ueda stated on Thursday that the economy was expected to recover moderately and hinted that the central bank would likely continue to hike interest rates in the months ahead, even in the event of a decline in the GDP for the first quarter.
We believe that the Bank of Japan will leave its stance unchanged at its June meeting as they would like to confirm the turnaround in economic growth, particularly in private spending and wage growth, that may be seen in July
ING economists
Following a two-month high of $US1.2761 ($A1.9259) on Wednesday, traders were unsure about the outlook for interest rates as data this week indicated that inflation did not slow as much as anticipated in April. This led to a muted sterling on Friday at $US1.2694 ($A1.9158).
Though observers said the poll was unlikely to have a significant impact on markets, the British Prime Minister Rishi Sunak and his Labour Party opponent Keir Starmer's election campaigns garnered attention on Thursday.
Oil prices in commodities remained stable, with a barrel of Brent crude valued at $US81.39 ($A122.83). Futures for US West Texas Intermediate (WTI) crude were trading at $US76.87 ($A116.01).
Although prices for gold increased by 0.24 percent to $US2334.16 ($A3,522.70) an ounce, they are expected to fall by 3.3% for the first week since late September.