Dollar jumps and global shares fall after Federal Reserve signals slower pace of rate cuts

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The dollar rose to its highest level in more than two years and global stocks fell on Thursday after the US Federal Reserve jolted markets by signalling a slower pace of interest rate cuts next year.

Asian currencies including the Chinese renminbi and Japanese yen fell sharply against the dollar, with South Korea’s won sinking to a 15-year low. The region’s benchmark equities indices opened down after a sharp slide in Wall Street stocks the previous day.

Futures contracts suggested Europe was poised to follow Asia and the US lower, with contracts tracking the FTSE 100 down more than 1.1 per cent and those for the Euro Stoxx 50 down 1.6 per cent.

The moves come after the Fed cut interest rates by a quarter of a percentage point on Wednesday but gave projections that pointed to fewer rate cuts than previously forecast for 2025, underscoring concern with lingering inflation.

The indication that US interest rates could remain higher for longer, sucking capital away from other markets, was a blow to Asian and emerging markets, where investors had hoped for a swift path back to lower rates.

“Markets were surprised by the perceived hawkishness of the Fed,” said Mitul Kotecha, head of emerging market macro strategy at Barclays in Singapore. “For Asia, which has struggled in terms of relatively lower yields and the weakness in China adding pressure on the region, [today’s falls] are the culmination of those factors.”

The dollar, which jumped 1 per cent against a basket of currencies including the yen and the pound on Wednesday, rose a further 0.1 per cent on Thursday.

The benchmark 10-year Treasury yield rose another 0.03 percentage points to 4.52 per cent. The rate-sensitive two-year yield was flat at 4.35 per cent after rising 0.11 percentage points on Wednesday.

The Indian rupee hit an all-time low of Rs85.1 against the dollar, while the Chinese renminbi teetered around Rmb7.3.

Asia-Pacific equities fell on Thursday, with Australia’s S&P/ASX 200 down 1.7 per cent, South Korea’s Kospi down 1.9 per cent and India’s Sensex falling 1.2 per cent.

Hong Kong’s Hang Seng index dropped 0.3 per cent, while mainland China-listed equities recovered after opening down.

Japan’s currency-sensitive Nikkei 225 index was down 0.6 per cent after the Bank of Japan opted on Thursday to hold rates steady.

The US Federal Reserve’s “dot plot” median now suggests policymakers only project two quarter-point rate cuts in 2025, down from four forecast in September.

“Given the risk of resurging inflation from potential trade tariffs and a slowdown in immigration that has been cooling pressure in the labour market, market expectations of only two more cuts in 2025 now seem reasonable”, wrote Jean Boivin, head of the BlackRock Investment Institute, in a note.