Dollar and Stocks Rise as Fed Signals Soft Landing

SINGAPORE, Sept 19 – The dollar rebounded, long-term bond yields increased, and Asian stocks surged following the Federal Reserve’s decision to cut interest rates by 50 basis points. The Fed indicated a cautious easing cycle ahead, leaving the door open for a soft landing of the U.S. economy.

The S&P 500 reached a record high overnight but closed slightly lower. However, futures gained 1% during the Asian trading session, with Nasdaq futures also rising 1%. European futures increased by 1%, and FTSE futures were up 0.8%.

Japan’s Nikkei climbed 2.3%, and stock markets in Australia and Indonesia hit record highs. In China, expectations of stimulus led to lower bond yields and pushed Hong Kong and mainland equity indexes higher. The Fed’s cut brought the benchmark rate down to 4.75%-5%, aligning with traders’ forecasts. Initially, the dollar weakened, hitting a two-and-a-half-year low against the British pound, but quickly recovered.

BNZ strategist Jason Wong in Wellington commented, “The key wasn’t the size of the cut but the path forward, and it seems the economy is holding up well.” He added that the 50-basis-point cut wasn’t made in panic.

The dollar settled at $1.1127 against the euro and around 142.70 yen after reaching a high of 143.95. Ten-year Treasury yields increased by nearly eight basis points to 3.719%, and gold surged to a record high just below $2,600 an ounce before stabilizing at $2,559.

Fed Chair Jerome Powell stressed flexibility in their approach, saying, “This is not a fixed pace. We’re adjusting policy toward a neutral level, moving as needed based on economic developments.”

CHINA RALLY

Attention now turns to the Bank of England, where persistent inflation in services has reduced the likelihood of a rate cut. Markets expect rates to stay at 5%, with only a 19% chance of a 25-basis-point reduction.

In China, policy easing expectations drove bond yields down and boosted the CSI300 blue-chip index by 0.7%, led by gains in liquor and property stocks. Hong Kong’s Hang Seng index jumped 1.9%. The Chinese yuan reached a 16-month high of 7.0640 per dollar, and China is expected to reduce its policy and benchmark lending rates on Friday, according to a Reuters poll.

MSCI’s Asia-Pacific shares index climbed 1%, reaching a three-week high. However, South Korean markets saw a sell-off in chipmakers after Morgan Stanley’s pessimistic report on SK Hynix, whose stock dropped 6%, while Samsung fell 1.6%.

Oil prices remained under pressure, with Brent crude futures hovering around $73.87 per barrel.

Globally, lower U.S. rates provide emerging markets room to lower their own policy rates to stimulate growth. Bank Indonesia cut rates by 25 basis points earlier on Wednesday. The Bank of Japan is expected to maintain its current rates on Friday but may signal future rate hikes, potentially as early as October.