MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1% to its lowest since mid-December

Asian shares declined to a one-month low, U.S. stock futures dropped and the dollar gained on Tuesday as hawkish remarks from central bankers tempered expectations for interest rate cuts and traders waited to hear from the Fed’s Christopher Waller.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1% to its lowest since mid-December. Japan’s Nikkei looked set to snap a sharp six-session winning streak with a 0.7% dip away from Monday’s 34-year high.

U.S. markets were closed for a holiday on Monday, but S&P 500 futures were down 0.4% in Asia trade, Fed fund futures dropped – reflecting a marginal cooling in interest rate cut expectations – and short-term Treasury yields advanced.

Two-year yields were up 6.5 bps in early Tokyo trade and tugged the dollar to one-month highs on the risk-sensitive Australian and New Zealand dollars.

On Monday European bonds were sold after ECB officials pushed back on market bets on rate cuts.

Bundesbank President Joachim Nagel said it was too early to discuss cuts and Austrian central bank governor Robert Holzmann warned not to bank on a cut at all this year.

The upshot was to see money markets scaling back the implied probability of a 25 basis points ECB cut in March to 26% from 40%, said NAB currency strategist Ray Attrill.

Two-year German bunds increased more than 7 basis points to 2.6% and 10-year bunds increased 5.4 bps to 2.2%, lending support to the euro, which jumped to a three-week high against the Swiss franc.

A firmer dollar pushed the euro down nearly 0.3% to a one-week low on the greenback at $1.0918 on Tuesday.

The Australian and New Zealand dollars shed 0.6% each, with the Aussie dropping through its 50-day moving average to $0.6620 and the kiwi down to $0.6161.