Fed’s sudden hawkish shift sent USD to two-month high and emerging market equities to three-week low
USD rose to a two-month high but Asian equities fell to a three-week low on Thursday, mainly because the Fed’s meeting concluded on a tone that was more hawkish than before. Although no immediate changes have been made, the Fed has signaled that interest rates might be raised in 2023. Moreover, tapering will be evaluated meeting by meeting from now on. Vaccination in the US has helped downgrade the risks on the economy, and this has helped the Fed to re-evaluate its policy.
A major reason for the declines in emerging equity markets is that rising interest rates in developed countries may attract capital away from riskier assets which are often found in developing countries.
USD is not the only major currency on the rise. NZD climbed aggressively after data showed that New Zealand’s economy grew much faster than expected in Q1. Seasonally adjusted growth was 1.6% in Q1, beating the forecast at 0.5%.