Asia stocks fall, dollar surges on Fed’s hawkish twist
By Shinichi Saoshiro
In a statement on Wednesday after a two-day meeting, the Fed ended its quantitative easing programme of bond purchases. At its peak, the programme pumped $85 billion a month into the financial system.
The Fed did retain its basic guidance that overnight borrowing costs would remain near zero for a "considerable time".
But it dropped the characterisation of the U.S. labour market slack as "significant" in a show of confidence in the economy's prospects, the part markets perceived as containing a slightly hawkish turn.
The dollar hovered near a three-week peak of 109.145 yen after rallying nearly 0.7 percent overnight in light of the Fed's statements, while the euro fell to a three-week trough of $1.2605.
The greenback benefited as U.S. Treasuries surged, with the benchmark 10-year Treasury note yield spiking to a three-week high of 2.362 percent as market participants pulled forward expectations of when the Fed would eventually raise interest rates.
"In the near-term, rates will likely move modestly higher from here, especially in the front end of the yield curve, as we assign a higher probability to the Fed beginning to hike in mid-2015. Also, I like the U.S. dollar, as this environment of diverging central bank actions looks to be a multi-year trend," said Erik Weisman, fixed income portfolio manager at MFS Investment Management.
The rate hike could give the Brazilian real a further lift. It had fallen to a nine-year low against the dollar on Monday after Rousseff defeated market-friendly challenger Aecio Neves, but recovered ground as some of the pessimism faded.