Market Turbulence in Response to Federal Reserve Speculations

The dollar's overnight gains receded as Asian stocks wavered amid uncertainty over a potential Federal Reserve rate cut. Traders saw variable odds for the Fed's easing cycle starting with a 50 bps cut. Regional stock performance was mixed, influenced by U.S. economic data and geopolitical tensions.

The dollar's overnight rally receded on Wednesday while Asian stocks struggled as traders speculated on the likelihood of a large Federal Reserve interest rate cut later in the day. The U.S. currency sharply dropped against the yen, giving back around half of Tuesday's gains that were driven by robust U.S. retail sales data, impacting the argument for an aggressive Fed easing.

Short-term U.S. bond yields edged slightly higher as the probability of a 50 basis-point Fed rate cut fluctuated, stabilizing at around 65%, according to LSEG data. Japan's Nikkei stock average initially rose by 1.3% but later pared back gains to 0.23% due to a strengthening yen. China's blue chips dipped 0.18%, and Taiwan fell 1% after a day off. Australia's benchmark saw a slight decline of 0.1%.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.27%. Major markets in Hong Kong and South Korea remained closed due to holidays. Wall Street ended nearly unchanged on Tuesday, with the S&P 500 and Dow hitting record intraday highs. Meanwhile, European markets indicated a weaker start with Pan-European STOXX 50 futures down by 0.19%.

Kyle Rodda, a senior financial market analyst at Capital.com, noted that the upcoming Fed meeting could be pivotal for the markets, which could either rally or mark a high-water point based on the Fed's decision. Analysts anticipate a 25 bps cut but suggest that a 50 bps cut could have varied impacts on the dollar.

Gold prices struggled, slipping 0.1%, while crude oil futures retreated amid escalating Middle East tensions. Concerns rose as Hezbollah vowed retaliation against Israel following recent bombings in Lebanon, and unresolved issues in the Libya central bank crisis continued to strain oil output and exports. U.S. crude futures dipped 49 cents to $70.70, and Brent crude futures fell 47 cents to $73.23.

(With inputs from agencies.)