Volkswacht Bodensee - Markets track US losses with rates seen rising further

Federal Reserve boss Jerome Powell dealt a blow to investors hoping its tightening cycle may be near an end by warning US lawmakers it "may make sense" to keep lifting.

His comments came as pressure built on the Bank of England to announce a bigger-than-expected increase at Thursday's meeting after news that the United Kingdom's inflation was unchanged at 8.7 percent in May, confounding forecasts.

The European Central Bank last week joined Canada and Australia in hiking further, with Switzerland following suit on Thursday. Norway is also tipped to lift later in the day.

Turkey was also tipped to reverse course from years of unconventional economics promoted by President Recep Tayyip Erdogan and dramatically raise interest rates to fight soaring inflation and steady the troubled lira.

After holding rates last week for the first time since starting last March, speculation had been growing that the Fed was close to calling it a day altogether, thanks to slowing price rises and a softer jobs market.

However, in congressional testimony on Wednesday, Powell said: "Given how far we've come, it may make sense to move rates higher but to do so at a more moderate pace."

He added that while progress was being made -- inflation dropped to 4.0 percent last month from 4.9 percent in April -- it "has consistently surprised us -- and essentially all other forecasters -- by being more persistent than expected".

Two more rate hikes this year was "a pretty good guess", he said.

The Fed has already raised its benchmark lending rate by five percentage points since March 2022, from close to zero to 5.0-5.25 percent.

Traders say there is a 75 percent probability officials will hike by 25 basis points at their July meeting, according to data from CME Group.

The expected increase in rates has revived worries the economy will tip into recession.

"The Fed is clearly not nearing the end of its tightening cycle and if other central banks seem poised to deliver more than a couple rate hikes, that might make it easier for the Fed to remain aggressive with tightening," said OANDA's Edward Moya.

"Powell said lowering inflation has a long way to go and that could very well mean that they won't stop until the fall."

All three main indexes on Wall Street fell for a third-straight session, and Asia followed on Thursday.

Tokyo, Sydney, Singapore, Manila, Wellington, Mumbai, Wellington, Bangkok and Jakarta were all in the red, though Seoul eked out a gain.

London, Paris and Frankfurt were also sharply lower at the open.

Hong Kong and Shanghai were closed.

Markets across Asia have gone into reverse this week, having enjoyed a healthy run-up in previous weeks on hopes that the tightening cycle was nearing an end and on talk that China was preparing a raft of stimulus measures.

The optimism was fanned by the central bank's decision to cut borrowing costs last week, though a smaller-than-expected reduction in the main benchmark rate this week knocked confidence.

The failure of Beijing to unveil any concrete policies to kickstart the stuttering economy has fed fears that the recovery from a Covid lockdown-induced slowdown has already come to an end.

Analysts said the traders are now looking ahead to a key meeting next month that will be headed by President Xi Jinping.

- Key figures around 0715 GMT -

Tokyo - Nikkei 225: DOWN 0.9 percent at 33,264.88 (close)

London - FTSE 100: DOWN 1.2 percent at 7,470.40

Hong Kong - Hang Seng Index: Closed for holiday

Shanghai - Composite: Closed for holiday

Euro/dollar: UP at $1.0992 from $1.0990 on Wednesday

Pound/dollar: DOWN at $1.2751 from $1.2766

Dollar/yen: UP at 141.91 from 141.87 yen

Euro/pound: UP at 86.18 pence from 86.07 pence

West Texas Intermediate: DOWN 0.3 percent at $72.34 per barrel

Brent North Sea crude: DOWN 0.3 percent at $76.88 per barrel

New York - Dow: DOWN 0.3 percent at 33,951.52 (close)

J.Horn--BTB