Stocks dropped after the Federal Reserve signaled interest rates will be higher for longer and as traders awaited a Bank of England policy decision that hangs in the balance.
The Fed on Wednesday held its target range, while updated quarterly projections showed most officials favored another rate hike in 2023. Policymakers also see less easing next year, with the median forecast for the federal funds rate at 5.1 per cent by year-end, up from 4.6 per cent when projections were last updated in June.
“There is now a real possibility the BOE pauses its hiking cycle this month or, perhaps more likely, raises rates while sending a signal that it thinks the move will be the last of the cycle,” according to economists Dan Hanson and Ana Andrade. There are heightened prospects of official support for the Japanese currency, said John Vail, chief global strategist for Nikko Asset Management Co. in Tokyo. “Japan's Ministry of Finance is likely to intervene in large fashion at 150 per dollar because it is hard to tolerate more inflationary pressure.”