Asian Markets Mixed, Dollar Rises Again as Fed's Jerome Powell Gets Nod

Markets were mixed in Asia on Tuesday and the dollar extended gains as investors bet on a quicker pace of monetary tightening by the Federal Reserve after Jerome Powell was nominated to serve a second term as boss and said his goal was to tame the recent spike in inflation.

While Powell was widely expected to get the nod from Joe Biden to continue to head the central bank, the news saw all three main Wall Street indexes drop from intra-day highs, with the Nasdaq ending down more than one percent owing to tech firms’ susceptibility to higher interest rates.

Surging prices — caused by a pick-up in demand, high energy costs and supply issues among other things — have forced several countries to lift borrowing costs and move away from the ultra-easy measures put in place at the start of the pandemic.

The Fed has yet to move, instead just this month starting to taper its bond-buying program, but expectations are for it to raise rates from the middle of next year, with some observers predicting another two before 2023.

After being nominated by Biden, Powell pledged to use “our tools to support the economy and a strong labor market and to prevent higher inflation from becoming entrenched”.

Hong Kong led losses in Asia, dropping more than one percent as tech firms tracked their US counterparts lower. There were also losses in Singapore, Seoul, Taipei, Mumbai and Jakarta, though Sydney, Shanghai, Wellington, Bangkok and Manila edged up.

Tokyo was closed for a holiday.

The dollar also held on to the strong rally it enjoyed Monday, rising above the 115-yen level for the first time since 2017, while it was close to a one-year high versus sterling.

The greenback was also up against a range of other currencies, including the Australian and New Zealand dollars, South Korean won and Indonesian rupiah.

Despite the selling on equities in New York and parts of Asia, analysts said Powell’s nomination over the more doveish Lael Brainard — who was put forward as vice chair — should provide support.

“Powell’s renomination removes a potential negative from the markets and provides the certainty that investors crave,” said George Ball, of financial services firm Sanders Morris Harris.

“Powell is sound, tested, respected and familiar to markets.”

He added that while markets will not rise sharply, replacing Powell “could have triggered major downward pressure on stocks, as investors dislike uncertainty and the unknown”.

Still, Robert Schein, at Blanke Schein Wealth Management, said the fed chief still had his work cut out.

“While investors no longer have to wonder about who will be leading the Federal Reserve for the next few years, the next big dilemma the central bank faces is how to normalize monetary policy without upsetting markets.”