SHANGHAI: Asian shares extended losses and the dollar crept up to near two-month highs on Friday after the US Federal Reserve this week projected higher interest rates in 2023.
While the Fed indicated no clear end to supportive policy measures such as bond buying, signals of faster-than-expected rate hikes underscored its inflation concerns as the US economy recovers from the Covid-19 pandemic.
"It's a difficult call, but I think what is pretty obvious is that the inflation genie is starting to sneak out of the bottle, and that will be a major driver of interest rates in the short to medium term," said James McGlew, executive director of corporate stockbroking at Argonaut in Perth.
European stock futures pointed to small declines at the open, with pan-region Euro Stoxx 50 futures down 0.02 per cent, DAX futures falling 0.06 per cent, FTSE futures inching 0.01 per cent lower, and CAC 40 futures easing 0.02 per cent.
In afternoon trade in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan was off 0.1 per cent, erasing earlier gains to extend declines into a fifth session.
Chinese blue-chip A-shares swung between gains and losses before ending flat, while Taiwan shares lost 0.41 per cent. Japan's Nikkei fell 0.19 per cent.
Gold prices, which plunged following the Fed comments on Wednesday, edged higher but were still set for their worst week since March 2020. Spot gold was last up 0.65 per cent at $1,784.90 per ounce.
Adding to indications of a continued rebound in the world's largest economy, new US data on Thursday showed growing factory activity and an easing in layoffs despite an unexpected rise in weekly jobless claims.
Hopes for a strong US recovery pushed technology stocks higher on Thursday, lifting the Nasdaq Composite up 0.87 per cent. But worries about inflation and higher rates weighed on the broader market, with the S&P 500 edging down 0.04 per cent. The Dow Jones Industrial Average fell 0.62 per cent.
"The Fed for a long time was sending a very strong signal that they were prioritising the labour market, and they want this broad, inclusive recovery and healing of the labour market and they're going to run the economy red-hot to get there," said Richard Franulovich, head of FX strategy at Westpac.
"Now... (inflation) is more of a priority. So that's the big wake-up call for markets. A very big wake up call."
US Treasury yields, which had jumped on the rate hike projections, turned lower on Friday afternoon. Benchmark 10-year yields stood at 1.5005 per cent, down from a close of 1.511 per cent on Thursday. The 30-year bond yield slid to 2.0859 per cent from 2.101 per cent.
The dollar index nevertheless climbed 0.11 per cent to 91.981, not far off Thursday's more than two-month peak of 92.010 following the Fed meeting. The dollar pulled back against the yen to 110.03, and the euro softened 0.08 per cent to 1.1900.
Oil prices took a hit from the strong dollar as concerns over demand and new Iranian supply also weighed.
Global benchmark Brent crude was down 0.53 per cent at $72.69 a barrel after settling at its highest price since April 2019 on Wednesday. US West Texas Intermediate crude, which touched its highest level since October 2018 on Wednesday, shed 0.38 per cent to $70.77. -- Reuters
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