TOKYO (Reuters) - The U.S. dollar slipped on Thursday after the Federal Reserve did not signal a faster pace of rate hikes this year while worries about a coming announcement on tariffs from U.S. President Donald Trump dented Asian shares.
MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.1 percent, erasing earlier gains of up to 0.7 pct, which were led by South Korea .KS11 and Taiwan .TWII hitting six-week highs. Japan's Nikkei .N225 gained 0.4 percent.
The U.S. Federal Reserve raised interest rates on Wednesday and forecast two more hikes for 2018 in its first policy meeting under Chairman Jerome Powell.
Given that some investors had expected it to project three more rate hikes, the guidance was perceived by some as less hawkish than anticipated, a positive factor for risk assets in general, though analysts noted the Fed was upbeat on the economy overall.
Fed policymakers notched up rate projections for 2019 and 2020 and also raised the estimated longer-term “neutral” interest rate a touch, suggesting the current tightening cycle could go on longer than previously thought.
“They also forecast three hikes next year and two more in 2020 and clearly revised up the growth forecast as well,” said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.
“So the picture looks different when you look at longer-term projections. That explains the complicated reaction by markets. The prospects of continued rate hikes may cap shares,” he added.
The yield on two-year U.S. notes yield slipped back to 2.299 percent US2YT=RR from 9 1/2-year high of 2.366 percent hit on Wednesday while the 10-year yield dipped to 2.872 percent US10YT=RR after an initial spike to 2.936 percent.
That pushed the U.S. dollar lower in the currency market, with the dollar index .DXY =USD testing this month’s low after suffering its biggest fall in two months on Wednesday.
The euro EUR= gained 0.2 percent to $1.2363, extending its recovery from a near three-week low of $1.2240 touched earlier in the week.
The dollar shed 0.4 percent to 105.66 yen JPY=, turning down on the week to edge closer to its 16-month low of 105.24 on March 2.
The British pound hit a 1 1/2-month high of $1.4171, building on Wednesday’s one-percent gains.
Strong UK wage data published on Wednesday cemented expectations that the Bank of England will likely signal a May rate hike later in the day at a monetary policy meeting.