Shares gained and the dollar firmed on Wednesday, after cautious but encouraging remarks on inflation by Federal Reserve Chair Jerome Powell the day before raised expectations for imminent U.S. rate cuts.
The pan-European STOXX 600 index rose 0.2% by 0740 GMT, led by gains in travel and leisure shares. MSCI's broadest index of Asia-Pacific shares outside Japan eased 0.06%, but remained close to the more than two-year high hit at the start of the week.
Speculation around the timing of interest-rate cuts has been dominating markets worldwide this year, as investors try to ascertain the moment at which policymakers feel they are bringing inflation under control.
The New Zealand dollar slid on Wednesday after its central bank held its cash rate steady at 5.5% on Wednesday as expected, but signalled confidence inflation was expected to return to its target range of 1% to 3% in the second half.
The kiwi fell more than 0.7% after the decision and was last at 0.54% lower at $0.6092, as traders sharply ramped up bets of RBNZ rate cuts later this year.
"Them kind of saying the CPI is going to drop back into target in the second half of this year... that CPI expectations could normalise more rapidly, I think that contributed," said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.
"Compared to the more hawkish statement, the tone they had in the May meeting, that stood out."
Swaps now imply more than 30 basis points worth of easing in October, as compared to 16 bps before the outcome.
The Aussie, meanwhile, rallied 0.6% to an over one-year high against the New Zealand dollar, with the former underpinned by wagers that the next move in Australian rates might be up given inflation is proving stubborn.
WAKE ME UP WHEN SEPTEMBER ENDS
Stocks, having slumbered for much of the year, have been energised on growing expectations of a Fed easing cycle likely to commence in September, with Powell saying on Tuesday that the U.S. is "no longer an overheated economy".
However, he provided little clues on how soon those rate cuts could come.
"If the labour market shows signs of cooling, so long as inflation data doesn't move higher and stays where it is, that might be enough to still deliver some music from the Fed," said Rob Carnell, ING's regional head of research for Asia Pacific.
The chances of a September cut have risen to more than 70% compared to a near-even chance a month ago, according to the CME FedWatch tool.
The closely-watched monthly U.S. inflation report is due on Thursday, where core consumer prices are expected to hold steady in June.
S&P 500 futures gained 0.06%, while Nasdaq futures firmed 0.16%.
DOLLAR RESILIENT
Still, the rise in U.S. rate-cut expectations has done little to sway the dollar, which remained broadly on the front foot on Wednesday.
That left sterling and the euro little changed at $1.2795 and $1.082, respectively.
Against the yen, the dollar rose 0.08% to 161.45, as the Japanese currency remained under pressure from the stark interest rate differentials between the U.S. and Japan.
But data on Wednesday showed Japan's wholesale inflation accelerated in June as the yen's declines pushed up the cost of raw material imports, keeping alive market expectations for a near-term interest-rate hike by the central bank.
The Bank of Japan said on Tuesday some market players called on the central bank to slow its bond buying to roughly half the current pace under a scheduled tapering plan due this month.
In commodities, oil prices ticked lower as the impact from Hurricane Beryl eased and inflation data highlighted stubbornly weak consumer demand in top crude importer China.
Brent futures fell 0.53% to $84.21 a barrel, while U.S. West Texas Intermediate (WTI) crude eased 0.45% to $81.04 per barrel.
Gold gained 0.36% to $2,372.12 an ounce. [GOL/]
