U.S. Treasury yields slipped to new four-month low, while the dollar continued to drop

Asian stocks broadly rallied Thursday morning, after the U.S. Federal Reserve flagged the end of its tightening cycle and struck a dovish tone for the next year.

U.S. Treasury yields slipped to new four-month low, while the dollar continued to drop.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.6 per cent.

Mainland Chinese bluechips rose 0.65 per cent, while Hong Kong’s benchmark added 1.7 per cent. Australian shares rose 1.6 per cent.

However, Japan’s Nikkei slipped 0.4 per cent, weighed down by the yen’s sharp rally.

The Federal Reserve left interest rates unchanged on Wednesday and Fed chief Jerome Powell said its historic tightening of monetary policy is likely over with inflation dropping faster than expected.

A near-unanimous 17 of 19 Fed officials project that the policy rate will be down by the end of 2024 than it is now – with the median projection showing the rate dropping three-quarters of a percentage point from the current 5.25 per cent-5.50 per cent range. U.S. fed funds futures bolstered the chances of rate cuts starting as soon as in March after the Fed decision, according to LSEG’s FedWatch. The market has priced in over 150 basis points of easing next year.

It was a very aggressive pivot, said Ben Luk, global macro strategist at State Street Asia Limited.

The Fed has followed market expectation in terms of allowing for one more rate cut to be added into both the 2024 and the 2025 (outlooks), Luk added.

He said: That aggressive pivot will have a mixed effect in Asia, with tech shares to benefit more while markets including Japan will have a dampening effect as its currency firms with a softening U.S. dollar.