Global Markets Reel from Fed Rate Hike Shockwave

The recent decision by the Federal Reserve to raise interest rates is sending shockwaves across global markets. The move has led to a surge in U.S. Treasury yields, with the 30-year yield briefly touching 5.337% on August 18, its highest since 2007. This increase in borrowing costs is not only affecting the U.S. but also having a ripple effect globally, making risk assets less attractive as investors seek higher returns.

The impact of the rate hike has been particularly pronounced in Asia, where tech stocks have tumbled nearly 3%. The Nikkei 225 index fell by this amount on the day yields spiked, with major players like Kioxia and Renesas experiencing double-digit drops. In contrast, European markets have shown some resilience, with the DAX edging up 0.2% as investors bet that the Fed will pause further hikes.

The dollar has also strengthened against other currencies, with the USD/JPY pair hovering near two-week highs despite coordinated intervention by Japan and the U.S. The euro is expected to weaken further, according to Bank of America, which predicts a decline in EUR/USD through Q3 due to the Fed's hawkish stance.