The dollar strengthened, long-term bond yields rose, and Asian stocks gained ground after the U.S. Federal Reserve announced a 50-basis-point rate cut, indicating a gradual approach to its easing cycle.
The S&P 500 reached a record high overnight, though it closed slightly lower, while futures rose by 0.67% during the Asian trading session. Nasdaq futures climbed 1%, Japan’s Nikkei surged by 2.5%, and stock markets in Australia and Indonesia achieved record highs.
The Fed reduced its benchmark policy rate by 50 basis points to a range of 4.75-5%, a move that traders had anticipated. Initially, the dollar fell to a two-and-a-half-year low against sterling but then rebounded sharply, rising nearly 1% to 143.55 yen and recovering from lows against the euro at $1.1097.
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Ten-year Treasury yields increased by nearly eight basis points from the previous day, reaching 3.719%. Meanwhile, gold prices soared to nearly $2,600 an ounce before settling at $2,559.
The Fed’s decision is expected to boost spending and support the U.S. economy, potentially encouraging other central banks to follow suit with rate cuts.
“The focus isn’t on whether it was a 25 or 50 basis point cut, but rather on the direction forward,” said BNZ strategist Jason Wong in Wellington. “This wasn’t a panic-driven decision.”
Policymakers revised their median rate projections down from their July outlook, but Fed Chair Jerome Powell stressed the need for flexibility. “No one should interpret this as setting a new pace,” Powell told reporters after the cut was announced. “We are adjusting policy gradually toward a more neutral level, moving at a pace that reflects economic developments.”
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The MSCI index for Asia-Pacific shares outside Japan rose by 0.3%. Markets in Hong Kong and China experienced broad gains, with expectations that Beijing is likely to implement stimulus measures following the Fed’s decision. Chinese bond yields declined.
South Korean markets returned from a holiday on a negative note, following a Morgan Stanley report that halved the target price for SK Hynix, leading to significant selling in chip stocks. SK Hynix shares fell by 8.7%, and Samsung declined by 3.1%.
Oil prices also dropped, with benchmark Brent crude futures down 0.3% at $73.42 a barrel.
Lower U.S. rates could give emerging markets more flexibility to reduce their policy rates to stimulate growth. Just hours before the Fed’s announcement, Bank Indonesia cut its rate by 25 basis points on Wednesday.
The Bank of England is set to meet later on Thursday, with expectations that it will maintain rates at 5%, especially after recent inflation data indicated a rise in services inflation in August. The Bank of Japan will announce its policy decision on Friday, where it is anticipated to hold steady but may signal future rate hikes, possibly as soon as October.
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