The US dollar was poised for big weekly gains on Friday, towering near one-year highs as a hawkish turn from the Federal Reserve chief sent short-term Treasury yields higher, leaving Wall Street and European futures in the red.
Asian shares looked to end a brutal week on a steadier note, helped by Chinese data retail sales in the world's second-biggest economy beat forecasts in October in a welcome sign for consumer spending, although other indicators missed.
Overnight, Fed Chair Jerome Powell said there was no need to rush rate cuts with the economy still growing, the job market solid and inflation still above the 2% target, tempering expectations for a rate cut next month.
Fed fund futures for next year slumped with December off 7 ticks and imply just 71 basis points of rate cuts by end-2025. A rate cut next month is no longer a high probability event, with just 61% priced in, down from 82.5% in the prior session.
That lifted the dollar across the board, especially against the euro as expectations for more aggressive policy easing in Europe further undermined the single currency already trading at one-year lows.
Goldman Sachs now sees a greater risk that the Fed could slow the pace of easing sooner, possibly as soon as the December or January meetings, while JPMorgan still tips the Fed to cut in December though they expect the central bank could dial down the easing pace in January.
"After the sugar hit of Trump’s election and its subsequent impacts on expectations for company profits, the market’s enthusiasm is being watered-down by greater interest rate uncertainty, especially going into next year," said Kyle Rodda, a senior analyst at Capital.com.
On Friday, Nasdaq futures fell 0.4% while S&P 500 futures eased 0.3%. EUROSTOXX 50 futures fell 0.5%.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.2% but was still down 4.3% for the week, the biggest weekly loss in more than two years.
A regional healthcare index underperformed with a drop of 1%, after US President-elect Donald Trump nominated Robert F. Kennedy Jr., a prominent vaccine sceptic, to lead the top US health agency.
Tokyo's Nikkei, however, gained 0.7% driven by a pull back in the yen, which boosted the outlook for Japanese exporters. Still, it was down 1.7% for the week.
The dollar gained for five days on the yen, up another 0.2% to 156.51, about the highest level since July.
But yen bears were on guard as Japan's finance ministry kept up its warnings of government action against excessive currency moves. Bank of Japan also announced governor Kazuo Ueda will deliver a speech on Monday, which will be watched for any hints on the timing of the next rate hike.
Chinese shares trimmed earlier losses as official data showed retail sales rose by a better-than-expected 4.8% in October, but growth in industrial output missed forecasts and declines in property investment deepened.
China's blue chips were last down 0.1% while Hong Kong's Hang Seng index rose 0.9%.
In the US policy front, even before Powell spoke, producer prices data showed that the core gauge surprised slightly to the upside, which also had markets worried about the pace of easing ahead.
Short-term Treasury yields shot up overnight and remained elevated on Friday. The two-year yields held at 4.36%, having jumped 6 basis points overnight to close at 4.357%.
In the currency markets, the dollar is set for a big weekly gain of 1.6% against its major peers.
The euro nursed heavy losses at $1.0540 and is set for a hefty weekly loss of 1.7%. Minutes of the latest meeting from the European Central Bank showed the cut last month was likely an insurance move.
Markets are, however, more dovish on the ECB and see a decent 36% chance it could step up its easing in December with a half-point move to guard against growth risks. They are also wagering that the ECB will have to cut at each meeting until mid next year.
The lofty dollar pressured commodity prices, with gold prices down 4.3% this week to $2,568.55, bringing the monthly loss so far to a sizeable 8%.
Oil are also down for the week. Brent crude futures are set for a weekly loss of 2.3% and were last at $72.15 a barrel.
