March 16, 2017 – Asian markets rallied and the dollar sank earlier today after the Federal Reserve lifted US interest rates but gave a more dovish outlook for future hikes, while the euro was also boosted by the expected victory of the incumbent party in Dutch elections.
After a much-anticipated meeting the US central bank lifted borrowing costs by a quarter of a point but suggested only another two rises this year, confounding talk of a possible three or four.
Fed boss Janet Yellen also said that while President Donald Trump’s planned big-spending, tax-cutting plans could fuel growth and inflation, she would keep a wait-and-see attitude before making any decisions on how to shape monetary policy.
The news, which came with an upbeat assessment of the world’s top economy, fired US stocks and sent the greenback tumbling in US trade.
And that continued into Asian business, with Hong Kong up 2.1 per cent and Shanghai adding 0.8 per cent.
The Fed move led Hong Kong’s de facto central bank to lift its own borrowing costs owing to a monetary policy link, and the Chinese central bank to lift short-term rates it charges banks to borrow cash in a bid to prevent a flood of cash out of the country and support the yuan.
The People’s Bank of China has struggled in recent months to staunch capital flight caused by investors looking for better returns in the US, pushing the yuan to around eight-year lows against the dollar.
Andrew Polk, Beijing-based head of China research at Medley Global Advisors, said: “Moving in line with the Fed also shows that China is still essentially importing US monetary policy, despite increased capital controls over the past several months.”
Seoul advanced 0.8 per cent, Sydney ticked up 0.2 per cent and Singapore was 0.8 per cent higher, while there were also big gains in Wellington, Taipei, Jakarta and Manila.