Asia stocks tumble, US dollar soars as Fed steps up inflation battle

SYDNEY – The US dollar surged to a fresh two-decade high against major peers and stocks fell on Thursday after the Federal Reserve raised interest rates and forecast more hikes ahead than investors had expected.

Japan’s Nikkei fell 1.05 per cent, while South Korea’s Kospi index lost 1.49 per cent. Singapore’s Straits Times Index was down 0.24 per cent. 

The Fed hike and growing US-China tensions sent Hong Kong stocks tumbling to decade lows. The benchmark Hang Seng Index dropped as much 2.6 per cent to touch the lowest level since December 2011, before paring losses to 1.77 per cent.

The Shanghai Composite Index was down 0.17 per cent.

The United States dollar index hit a 20-year high of 111.65 and the greenback’s strength sent the Australian, New Zealand and Canadian dollars down to fresh multi-year lows.

The Singapore dollar fell 0.24 per cent against the US dollar to 1.4207 as at 10.38am on Thursday.

The pound hit US$1.1233, its lowest in 37 years. South Korea’s won slid past the symbolic 1,400 per dollar mark for the first time since 2009. The Thai baht, Malaysian ringgit and Swedish crown all made major new lows.

The euro sank to a 20-year low of US$0.9810 after Russia ordered the mobilisation of reserve troops in an escalation of the war in Ukraine.

The Fed raised rates sharply by 75 basis points on Wednesday – the third such rise in a row. This takes the central bank’s benchmark overnight rate target range to 3 per cent to 3.25 per cent.

Projections showed officials think that rates are going higher and growth is going lower, and the median forecast is for the funds rate to hit 4.4 per cent this year – higher than markets had priced and 100 basis points more than the Fed projected three months ago.

“The Fed is not going to stop any time soon and there is going to be an extended period of restrictive monetary policy for at least the next year or so,” said chief investment officer Sally Auld at wealth manager JBWere in Sydney.

“What else do you buy except for the US dollar at the moment?” she added, with growth clouds over Europe, Britain and China and the yen tanking as Japan holds interest rates low.