Investors react to Fed decision

A currency dealer monitors exchange rates in a trading room at KEB Hana Bank in Seoul on March 13, 2020.

JUNG YEON-JE | AFP via Getty Images

SINGAPORE — Shares in Japan and South Korea advanced Thursday as investors reacted after the U.S. Federal Reserve’s policymaking committee voted to keep short-term borrowing rates near zero in a widely expected move.

The Nikkei 225 in Japan rose 1.4% while the Topix index added 0.93%. South Korea’s Kospi climbed 1.17% and the Kosdaq was up 0.83%.

Australian shares wavered between gains and losses, with the benchmark ASX 200 slipping 0.26% as most sectors traded lower. But, the energy and materials subindexes recovered from losses in the previous session to trade up 0.59% and 0.45%, respectively.

U.S. stocks rose overnight, pushing as the Dow Jones Industrial Average to its first close above 33,000 while Treasury yields eased from earlier highs.

Fed decision

The Fed ramped up its expectations for economic growth but indicated that there are likely to be no interest rate hikes through 2023.

Chairman Jerome Powell said he expects inflation will rise this year due in part to soft year-over-year comparisons from the early days of the Covid-19 pandemic in 2020. However, he said that won’t be enough to change policy that seeks inflation above 2% for a period of time, if it helps to achieve full and inclusive employment.

Four of the 18 Federal Open Market Committee members were looking for a rate hike in 2022, compared with just one at the December meeting, according to the “dot plot” of individual members’ forecasts. For 2023, seven members see a hike, compared with five in December.

Every quarter, members of the FOMC forecast where interest rates will go in the short, medium and long term. These projections are represented visually in charts and are called a dot plot.

“The FOMC statement was very similar to January’s,” strategists at the Commonwealth Bank of Australia wrote in a Thursday morning note. “However, the Committee did note that indicators of activity and employment had turned higher recently.  Nevertheless, the statement retained that the ongoing health crisis continues to pose “considerable risks to the economic outlook” and that current levels of policy accommodation remain appropriate.”

“The combination of unchanged median dot plots and Chair Powell’s dovish comments pushed USD and US bond yields lower (after an increase in yields early in the day),” the CBA strategists noted.

Currencies and oil

In the currency market, the dollar tumbled against a basket of its peers as the dollar index fell from levels near 91.900 before the Fed decision to around 91.371 on Thursday morning during Asian trading hours.

The Japanese yen changed hands at 108.92 per dollar while the Australian dollar rose 0.44% to $0.7828.

Oil prices moved little on Thursday during Asian trading hours. U.S. crude futures were fractionally lower at $64.54 while global benchmark Brent fell 0.1% to $67.93.

Energy prices fell overnight on the back of growing worries around fuel demand as well as rising U.S. inventory. In Europe, there are concerns that economic recovery could be delayed after several countries temporarily halted the use of AstraZeneca’s Covid-19 vaccines due to worries over possible side effects.

CNBC’s Jeff Cox contributed to this report.

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