Asian shares up, dollar wobbly as US inflation data reinforces Fed pause bets

SYDNEY  – Asian shares rose and the dollar was under pressure on Wednesday after slowing U.S. inflation solidified bets that the Federal Reserve would skip a hike later in the day, but uncertainty remained about further rate increases beyond this week.

The much-watched U.S. CPI report overnight showed prices barely rose in May, with just a 0.1-percent increase from the prior month. On an annual basis, consumer prices rose 4 percent, the smallest in more than two years, slowing from April’s 4.9 percent.

US consumer inflation eases for 11th straight month

That led traders to firm up expectations of a rate pause by the Fed to 91.9 percent when it concludes a two-day policy meeting on Wednesday, but the still-strong underlying price pressures suggest an over 60 percent probability the central bank could resume hikes in July, according to CME Group’s FedWatch Tool.

MSCI’s broadest index of Asia-Pacific shares outside Japan was up 0.2 percent in early regional trade, after surging 1.1 percent in the prior session to the highest in two months.

Tokyo’s Nikkei rose 1 percent to a fresh 33-year high, helped by expectations of extended ultra loose policy from the Bank of Japan.

Regionally, the accommodative policy stance from China also lifted sentiment with signs of more easing to come. China’s bluechips rose 0.5 percent while the Hong Kong’s Hang Seng Index was up 0.4 percent.

Both S&P 500 futures and Nasdaq futures were flat, after a strong rally overnight to their highest closing levels in 14 months thanks to the softer U.S. inflation data.

“While the soft headline inflation print gives the Fed the go-ahead to pause its rate hiking cycle on Thursday, sticky core inflation will keep the Fed’s hawkish trigger finger hovering over the rate hike button in the months ahead,” said Tony Sycamore, a market analyst at IG.

Perhaps reflecting some of those concerns, two-year Treasury yields hit 4.7070 percent overnight, the highest since March, before easing a little to 4.6556 percent in Asian hours.

The benchmark 10-year yields also climbed to the highest in 2-1/2 weeks at 3.8450 percent. They were last at 3.8075 percent.

Markets would also be focusing on the post-policy press conference from Fed Chair Jerome Powell and whether the dot plot would signal any hikes ahead.

Persisting inflation pressures elsewhere are keeping markets jittery. Data showing a rapid pickup in UK wage growth in the three months to April could complicate matters for the Bank of England, which is set to debate its monetary policy decision next week.

Short-dated German yields jumped to a 3-month high overnight as investors looked to the rate decision from the European Central Bank on Thursday. It is expected to raise rates by another quarter-point and again in July before pausing for the rest of the year.

The U.S. dollar remained pressured on Wednesday at 103.26 against its major peers, just a touch above a three-week low that it hit overnight.

Dollar skids to three-week low as US inflation data reinforces Fed pause view

The euro was hanging at $1.0794 after hitting a three-week top of $1.0823 overnight, while sterling settled at $1.2613, nearing a one-month high of $1.2625 reached overnight.

Oil prices were lower in early trade after receiving a 3- percent boost on China’s policy rate cut. U.S. crude futures were off 0.5 percent to $69.12 per barrel, while Brent crude futures fell 0.4 percent to $74.02 per barrel.

Gold prices were slightly higher at $1,945.96 per ounce.