Asian markets experienced a reversal on Thursday following forecast-topping US inflation data, which dealt a substantial blow to hopes for a June interest rate cut. Traders were forced to re-evaluate the outlook for monetary policy, with a warning that the next move could even be a hike.

The losses mirrored a sell-off on Wall Street and resulted in the dollar reaching a 34-year high against the yen, sparking speculation that Japanese authorities would intervene to support their struggling currency.

Figures revealing a 0.4 percent on-month and 3.5 percent on-year increase in the consumer price index were both above consensus for the third consecutive month. Observers cautioned that the pick-up might not be a temporary blip but could indicate a concerning trend.

These numbers followed other data, including a forecast-beating jobs report, suggesting that the US economy, despite borrowing costs being at a two-decade high and inflation well above target, remained robust.

The reading provides Federal Reserve officials with more to consider ahead of their May policy meeting, with their recent guidance of three rate cuts this year now in question.

Investors began the year hopeful that the central bank would implement six cuts in 2024, starting with one in March. However, they are now considering at most two cuts, with the likelihood of a June reduction decreasing.

However, some remain less optimistic. Torsten Slok from Apollo Global Management stated, “We are sticking to our view that the Fed will not cut rates in 2024.” Meanwhile, former Treasury Secretary Lawrence Summers warned that traders must “take seriously the possibility that the next rate move will be upwards rather than downwards.”

Despite concerns, minutes from the Fed’s recent meeting indicated that while decision-makers were apprehensive about recent figures, they still envisioned cuts this year.

“However, a few participants noted that residual seasonality could have affected the inflation readings at the start of the year,” the Fed stated.

Neil Wilson from Finalto added that “despite the hot number, there are many reasons why the Fed may still cut in June… but if the market moves too far out of step then the Fed may be forced to wait a little longer.”

The disappointing data sent all three main indexes on Wall Street into the red, and Asia followed suit, with Hong Kong, Tokyo, Sydney, Seoul, Singapore, Wellington, Taipei, and Manila all seeing declines.

“The fallout from the hotter-than-expected US inflation read… will reverberate across regional equity markets (Thursday),” observed Tony Sycamore of IG Australia.

“Investors were keeping tabs on Tokyo as the dollar surged to 153.24 yen, the strongest since 1990, on the US CPI reading.”

Authorities in Tokyo have indicated they would keep their options open on supporting the yen. However, while top currency official Masato Kanda has attributed volatility in the dollar-yen exchange to speculators, analysts noted that the latest moves were more related to the US data.

“It’s clearly a US dollar move and Japanese officials can’t really argue its speculators attacking the yen,” commented Peter Vassallo of BNP Paribas Asset Management.