HONG KONG, July 14 ― Asian shares struggled today and the safe haven dollar was strong as white hot US inflation data drove fear the Federal Reserve will raise interest rates even more aggressively to slow price increases, potentially sending the economy into recession.
Overnight US data showed rising costs of fuel, food and rent drove the consumer price index up 9.1 per cent last month, leading to worries that the Fed could raise rates by an enormous 100 basis points at its meeting next month rather than the 75 that had been expected. “I personally think the Fed will stick to 75 ― which is still a high number ― if they go to 100 it will look like they are panicking.”
So-called yield curve inversion, when short-dated interest rates are higher than longer ones, is commonly seen as an indicator of a recession, and the gap between the two touched 25 basis points in early Asia.Carlos Casanova, senior economist at UBP, said a recession in the US would mean less demand for Asian exports, with investors turning more “risk off” and moving money out of emerging markets, and forcing Asian central banks to raise rates themselves to avoid too currency depreciation.
Elsewhere in currency markets, the euro was hovering back just above parity with the dollar at US$1.00155 . It briefly dipped to US$0.9998 overnight, breaking below US$1 for the first time since December 2002.