Asian Markets Dip as Dollar Rises on Diminished Fed Rate Cut Hopes Amid Inflation Fears

Asian stock markets faced pressure on Wednesday following signs of rising U.S. inflation linked to fresh tariffs, which weakened expectations of interest rate cuts by the Federal Reserve. The U.S. dollar surged to its highest level against the Japanese yen since early April, propelled by a jump in Treasury yields. Meanwhile, major indices across Asia—including Australia’s ASX, South Korea’s KOSPI, and China’s CSI300—recorded declines, while Japan’s Nikkei remained relatively flat, supported slightly by a weaker yen.

Data released on Tuesday revealed that U.S. consumer prices rose 0.3% in June, the largest increase since January and in line with forecasts. Economists cited tariffs imposed by President Donald Trump’s administration as a key contributor to the inflation spike, affecting goods such as coffee and furniture. Fed Chair Jerome Powell had previously warned of summer inflationary pressures due to tariffs, and analysts now believe this forecast is coming to fruition, reinforcing the Fed’s cautious stance on interest rate adjustments.

Investor sentiment shifted as traders slashed expectations for significant Fed policy easing. Risk assets, particularly equities, took a hit as markets now anticipate just 44 basis points of rate cuts for the remainder of 2025, with slightly better than 50-50 odds for a September cut. Senior economists suggest that this repricing reflects increased confidence in the Fed’s wait-and-see approach, with producer price data later this week expected to offer further inflation clues.

Globally, U.S. stock indices closed mixed, with the Dow down 1%, the S&P 500 falling 0.4%, and the tech-heavy Nasdaq inching up by 0.2%, bolstered by a 4% rally in Nvidia. In Europe, STOXX 50 futures indicated a softer open. Taiwan’s tech-driven TWII bucked the broader regional trend by adding 0.9%. Elsewhere, upcoming corporate earnings—including results from Goldman Sachs, Morgan Stanley, and Bank of America—are in sharp investor focus amid mixed reactions to earlier bank results.

Currency markets saw the dollar maintain strength, hovering near recent highs against a basket of peers. The euro attempted a mild recovery while the yen slipped past the 149 mark. Bitcoin gained around 1%, rebounding after a recent sharp pullback. In commodities, gold edged up by 0.5% to $3,338 an ounce, while oil prices softened slightly, with Brent crude and WTI both down for a second consecutive session amid market caution on global growth and inflation.

Source: Reuters