Shifting views on interest rates in 2010 whipsawed markets on Wednesday, with the Australian dollar tumbling as investors scaled back their bets on aggressive rate hikes, while US Treasuries rose before the last Federal Reserve meeting this year.
Asian stocks mainly slid on profit taking, though price action was exaggerated by thin trading volumes heading into the year-end.
Japanese bank shares provided a bright spot, surging on a report that global regulators would give banks a long grace period before applying stricter capital rules.
A rise in US wholesale prices last month, which pushed up Treasury yields overnight, prompted speculation the Fed may have to account for these pressures in its post-meeting statement, though Fed Chairman Ben Bernanke said in a letter to a congressman that inflation is not a problem.
“Investors were concerned that if data continues to beat expectations on the growth and price fronts, the Fed will change its tack,” said , Dariusz Kowalczyk, chief investment strategist with SJS Markets in Hong Kong . “We do not see the Fed hiking until 2011 and attribute part of the gain to year-end profit taking after a long downward trend. The greenback is likely to resume declines.”
With the global economy recovering from the worst slump in generations, investors are carefully weighing when central banks and governments will begin withdrawing massive stimulus measures, and if they can unwind such policies without disrupting markets.