Asian shares stutter, dollar rally pauses as Fed cues eyed

SINGAPORE  – Asian stocks edged lower on Tuesday as the prospect of the U.S. central bank having to stay on its hawkish path weighed on sentiment, with investors looking to the minutes of the latest Federal Reserve meeting for further monetary policy clues.

MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.34 percent to 531.85, hovering around six-week lows of 529.30 it touched last week.

The index is down nearly 3 percent this month after jumping 8.6 percent in January as a slew of robust U.S. economic data reinforced fears that interest rates may need to rise further and stay higher for longer.

The market is now pricing U.S. interest rates to peak at 5.3 percent in July and remain above 5 percent by the end of the year, moving away from expectations of deeper rate cuts this year.

Japan’s Nikkei was 0.01 percent higher, while Australia’s S&P/ASX 200 index fell 0.52 percent. China’s shares were set to start flat while Hong Kong’s Hang Seng Index opened 0.1 percent lower.

“The backdrop of inflation concerns in the U.S. is still keeping risks of a tighter than expected monetary policy, and yields remain a key focus as U.S. markets return later today,” strategists at Saxo Markets said.

U.S. markets were closed on Monday due to President’s Day holiday.

The yield on 10-year Treasury notes was up 3.5 basis points to 3.863 percent, after touching a three-month high of 3.929 percent on Friday.

The yield on the 30-year Treasury bond was up 1 basis points to 3.899 percent, while that of the two-year U.S. Treasury paper, which typically moves in step with interest rate expectations, was up 5.4 basis points at 4.677 percent.

Investor focus is firmly on the release on Wednesday of the minutes of the Fed’s latest meeting when it raised interest rates by 25 basis points.

In the currency market, the dollar hovered just shy of recent peaks as a three-week rally faded, with traders looking to European and U.S. manufacturing data later Tuesday and Friday’s core PCE price index to help guide their next steps.

DBS currency strategist Philip Wee said the market is bracing for another surprise in the PCE data after the strong U.S. nonfarm payrolls and CPI readings this month.

The dollar index, which measures the U.S. currency against six other rivals, was last at 104.01, just below a six-week high of 104.67 it touched on Friday. The euro fell 0.12% to $1.0669, and is set to snap four straight months of gains and end February lower.

The yen weakened 0.12 percent to 134.40 per dollar, while sterling was last at $1.2022, down 0.13 percent.

U.S. crude was up 1.02 percent at $77.12 per barrel and Brent was at $83.80, down 0.32 percent on the day.