What factors drove Asian stocks higher and the US dollar lower?

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Asian Stocks Rose and the US Dollar Fell Following Federal Reserve Chair Jerome Powell's Remarks Reinforcing Rate Cut Prospects

Asian stocks experienced an upward trend, while the US dollar weakened following statements from Federal Reserve Chair Jerome Powell that bolstered the likelihood of an interest rate cut later in July. Powell confirmed that the US economy faces ongoing challenges from subdued factory activity, low inflation, and an escalating trade war, indicating the central bank is prepared to "act as appropriate." This sentiment resonated across global markets, influencing currency and equity valuations.
Powell's Testimony Signalled Potential Monetary Easing

Federal Reserve Chair Jerome Powell's testimony before Congress on Wednesday indicated a readiness to adjust monetary policy, citing concerns over the US economy. He specifically mentioned disappointing factory output, tame inflation figures, and the ongoing trade dispute as factors influencing the economic outlook. This cautious assessment from the head of the US central bank suggested a potential shift towards more accommodative monetary policy, which typically weakens the dollar as it lowers the return on dollar-denominated assets.
Market Expectations Shifted Towards a Larger Rate Cut

Following Powell's comments, market expectations for the magnitude of the Federal Reserve's upcoming interest rate cut saw a notable adjustment. While a strong June US jobs report had previously tempered expectations for a substantial reduction, Powell's cautious tone revived the possibility of a more significant easing. The probability of a 50 basis point rate cut by the Federal Reserve at its July 30-31 meeting increased to 27.6 per cent, up from 3.3 per cent on Tuesday, according to CME Group's FedWatch tool. This increased anticipation of a larger cut contributed to the dollar's decline.
Regional Equities Saw Gains, While the Dollar Weakened Against Major Currencies

The impact of Powell's remarks was evident across various asset classes. MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.2 per cent, with Japan's Nikkei rising 0.15 per cent and South Korea's Kospi climbing 0.7 per cent. US stocks also ended higher the previous day, with the S&P 500 briefly surpassing the 3,000-point mark. Concurrently, the US dollar index, which measures the dollar against a basket of six major currencies, fell 0.4 per cent overnight to 97.055, retreating from a three-week high. The greenback also weakened against the yen, euro, and Australian dollar. The 10-year US Treasury yield dropped to 2.052 per cent, reflecting the reduced market expectation of higher interest rates.

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What factors drove Asian stocks higher and the US dollar lower?

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