SINGAPORE : Asian shares fell sharply on Wednesday, while the dollar advanced after hawkish comments from Federal Reserve Chair Jerome Powell raised the possibility of the U.S. central bank returning to large rate hikes to tackle sticky inflation.
MSCI's broadest index of Asia-Pacific shares outside Japan was 1.45 per cent lower, while Australia's S&P/ASX 200 index fell 0.70 per cent. Japan's Nikkei rose 0.10 per cent.After a series of jumbo hikes last year, the Fed raised rates by 25 basis points in its last two meetings but resilient economic data since start of this year had stoked fears the U.S. central bank might return to larger rate rises.
"Powell has essentially opened the door to 50 basis point hike," said Chris Weston, head of research at Pepperstone. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -106 basis points, its deepest since August 1981, according to Refinitiv data. Such an inversion is seen as a reliable recession indicator.
The spotlight will now be on Friday's U.S. payrolls data and next week's inflation figures that will dictate further moves from the Fed.