Global stock markets have tumbled and the euro has held near a two-month high against the dollar after surprisingly downbeat first quarter economic growth in the US that may upset the Fed's monetary policy plans.
Most Asian stock markets sank Thursday driving down the MSCI index of Asia-Pacific shares outside of Japan by 1.1 percent. Japan's Nikkei also fell, ending down 2.6 percent after extending losses because the Bank of Japan has kept monetary policy unchanged, disappointing investors' hopes for further economic stimulus.
The selloff in Asian equities followed Wednesday's slide in United States and European stocks, with Germany's DAX tumbling 3.2 percent. It was caused by a US Commerce Department announcement on Wednesday that the world's largest economy grew at an annualized rate of 0.2 percent between January and March - far short of the 1.0 percent projected by analysts.
US Fed in a fix
The US data are the latest indication of a slowdown in growth in the United States, and plunges the country's central bank into a dilemma about when to raise interest rates.
The US Federal Reserve said Wednesday the slowdown was due "in part" to transitory factors and expansion should continue at a "moderate pace". That suggested the Fed still expects to begin a slow series of rate rises in the coming months, though not likely in June as many analysts had been expecting until recently.
Mark Lister, head of private wealth research at Craigs Investment Partners, told Bloomberg News that it remained to be seen whether the weakness would point to a "more structural slowdown" in the US economy.
"While plenty of people are expecting the rate hike to be pushed back even to 2016, its important to watch the next piece of economic news to gauge whether the weakness we've seen was a one-off or the beginning of a trend," he added.
The US dollar also came under further pressure as chances for a US interest rate hike this summer, which tends to lift the currency, have diminished. The greenback was at 118.92 yen early Thursday, slipping from 119.02 yen in New York the day before.
The euro bought $1.1122 - a level not seen since March 3. Apart from the US data, the European single currency was pushed by a rise in eurozone debt yields, notably German Bund yields which posted their biggest daily increase in two years.
The euro, however, shed some of its gains after the US Fed's comments suggested the growth slowdown was mainly to be attributed to the harsh winter.
uhe/sri (Reuters, AFP, dpa)