Asia-Pacific Stocks Reverse Early Gains After Fed’s Third Rate Cut and Pause Signal

Equity markets across the Asia-Pacific region struggled to hold early advances on Thursday after the U.S. Federal Reserve lowered interest rates for the third time this year and indicated it is likely to leave policy unchanged for the foreseeable future.

The Federal Open Market Committee on Wednesday trimmed its target range for the federal funds rate by 25 basis points to 3.5%–3.75%. In a post-meeting briefing, Chair Jerome Powell said the new level places the central bank “in a good place” to monitor economic developments before taking further action. He added that tariffs implemented by the U.S. administration have contributed to higher inflation.

Following the announcement, the U.S. Dollar Index weakened to 98.54, its lowest reading since 21 October. Short-term Treasury yields also edged lower after the Fed confirmed plans to buy approximately $40 billion in Treasury bills each month beginning Friday, a move intended to ensure ample liquidity in money markets.

Regional performance

Japan’s Nikkei 225 opened in positive territory but ended the session down 0.58%. The broader Topix slipped 0.52%. In South Korea, the Kospi fell 0.56%, while the tech-heavy Kosdaq declined 0.36%.

Hong Kong’s Hang Seng Index managed a modest 0.1% increase, supported by selective strength in property and financial names. On the mainland, the CSI 300, which tracks the largest stocks in Shanghai and Shenzhen, finished marginally lower.

Shares of telecommunications equipment maker ZTE Corp dropped more than 5% in Hong Kong trading. The slide followed a Reuters report stating that the company may have to pay in excess of $1 billion to the U.S. government to resolve allegations of foreign bribery.

Australia’s S&P/ASX 200 oscillated around the flatline and closed fractionally negative, as gains in energy issues were offset by weakness in the financial sector. Markets in New Zealand were closed for a public holiday.

Fed’s policy stance

Besides cutting rates, the Fed altered the language of its policy statement, removing a reference to labor market conditions that had “remained low.” The change signals heightened attention to broader economic momentum rather than a sole focus on price stability. Powell noted that the committee now views policy as “appropriate” and will assess incoming data before adjusting rates again.

Imagem: financial planning 6

The decision was widely anticipated by investors after recent releases showed mixed economic signals: robust consumer spending but softer manufacturing output and business investment. By hinting at a pause, the central bank sought to balance concerns about slowing global growth with the resilience of the U.S. labor market.

Wall Street reaction

U.S. equities rallied in the wake of the rate move. The Dow Jones Industrial Average gained 1.1%, the S&P 500 advanced 0.7%, and the Nasdaq Composite added 0.3% during Wednesday’s session. The rise in major indexes provided an early tailwind for Asian markets, though momentum waned as local trading progressed.

Currency and bond moves

In foreign-exchange trading, the yen firmed slightly against the dollar, trading around 108.75 per dollar, while the Australian dollar hovered near US$0.689, its highest level in more than two weeks. Yields on two-year U.S. Treasurys slipped to 1.60% after the Fed’s bill-purchase announcement, reinforcing expectations that short-term funding markets will remain well supplied with liquidity.

Outlook

Market participants now await key economic indicators, including U.S. nonfarm payrolls due Friday, to gauge whether the Fed’s current stance will be sustained. In the Asia-Pacific region, attention turns to China’s official manufacturing PMI, scheduled for release later in the week, for further clues on regional demand.

Analysts say cross-currents such as trade negotiations, corporate earnings and domestic policy initiatives will continue to drive day-to-day volatility. For now, the Fed’s pause has removed one source of immediate uncertainty, but investors remain alert to data that could prompt a reassessment of growth prospects.

Crédito da imagem: Marco Bottigelli | Moment | Getty Images