HONG KONG—Signs of a pick-up in US inflation reinforced expectations the Federal Reserve will hike interest rates next month, supporting the dollar in Asia Wednesday but regional stock markets were subdued after rallying the previous day.
Traders are also awaiting the release later in the day of minutes from the US central bank’s October policy meeting, hoping for some clues about board members’ thinking and possible pointers to their plans for next month’s gathering.
The Fed holds its last policy meeting of the year in mid-December and a recent spate of upbeat data on the world’s number one economy have fanned speculation it will tighten monetary policy for the first time in almost a decade.
Talk of a hike comes despite a slowdown in the global economies, particularly in China, while the central bank of Japan and Europe consider further stimulus measures. The Bank of Japan concludes a two-day policy meeting Thursday.
“The Fed minutes will definitely be focused on tonight,” Ric Spooner, chief market analyst at CMC Markets Asia Pacific in Sydney told Bloomberg News.
“There’s now an assumption that they are going to make a move in December. The bigger question now is whether they will be able to be as gently paced in their tightening as they plan to be as they monitor wage pressures.”
The dollar sat near seven-month highs against the euro and stood firm against the yen.
Ongoing weakness in the eurozone and Japanese economies continues to put pressure on their central banks to increase stimulus, putting pressure on their respective currencies.
The euro traded virtually unchanged at $1.0645 from $1.0644 Tuesday in New York, while the greenback dropped to 123.28 yen from 123.39 yen in US trade.
Nervousness returned to markets on news that two Paris-bound Air France flights from the United States were diverted because of anonymous bomb threats.
Emerging currencies also retreated as dealers shift into the dollar looking to invest in the United States in search of better and safer returns.
South Korea’s won dipped 0.2 percent, the Australian dollar eased 0.2 percent, Indonesia’s rupiah shed 0.3 percent and the Malaysian ringgit was 0.1 percent lower.
On equities markets Shanghai lost one percent as investors fret over the state of the economy and the imminent restart of initial public offerings that they fear will divert cash from established stocks.
Hong Kong swung between negative and positive territory and Sydney ended slightly up. In Tokyo, the Nikkei ended a little higher, paring early gains as the yen recovered some strength against the dollar in the afternoon.
Markets broadly rallied in Asia on Tuesday a day after suffering hefty selling in reaction to the Paris attacks. The bloodbath in the French capital Friday raised concerns about security in Europe and the possible effects on the region’s economy.
The anaemic performance Wednesday came despite another positive lead from Europe, where Paris rallied 2.8 percent and Frankfurt was up 2.4 percent. London jumped 2.0 percent.