Stocks, Dollar Sink on Washington Turmoil

Volatility spread across Asian equity markets after turmoil surrounding Donald Trump's administration sparked the worst day in eight months for U.S. stocks.

Asian stock markets were mostly lower on Wednesday as a rise in political uncertaint.

Investors were pricing in slightly below an even chance for two or more rate increases in 2017, despite central bankers' stated view that they will hike two more times in 2017.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.5 percent while Japan's Nikkei .N225 shed 0.4 percent.

A pedestrian walks past quotation boards flashing the key Nikkei index of the Tokyo Stock Exchange (L) and a foreign exchange rate against the USA dollar (R) in the morning session in Tokyo on May 18, 2017.

Both the Dow and S&P 500 fell below their 50-day moving averages for the first time since April 21.

The Nasdaq decreased 158 points, or 2.57 percent, to finish trading at 6,011 - its biggest single-day decline since June 24. On Tuesday, the index returned to 98.

"The market has come alive with the dynamic of volatility, which will no doubt be welcomed by numerous shorter-term traders out there", Chris Weston, chief market strategist at IG Markets Melbourne wrote in note. "When so many global markets were at multi-year, if not all-time highs, you know there would be some pain being felt out on the floors today".

Wall Street futures pointed to another, albeit more modest, fall of around 0.2 per cent when it reopens later.

The clearest casualty has been the United States dollar, which has lost all the gains it made since the U.S. election.

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The administration is facing scrutiny about whether the president asked the former head of the FBI to drop an investigation, as well as questions about his handling of secret intelligence.

Brazil also plunged into political crisis, following reports that President Michel Temer was involved in an alleged cover-up with the jailed former speaker of the lower house of Congress.

"It remains to be seen whether we can move on from the political issues around Trump and Russian Federation. The U.S. administration's protectionist policies and softer data have been the primary drivers". It reached session high at 1.2989 and dropped to session low at 1.2931 levels.

"The important thing is what's going on with the economy", said Hideyuki Suzuki, a general manager at SBI Securities Tokyo.

The dollar fell by as much as 1.35% against the yen, blowing through the 112 yen level to 111.57 yen. The euro climbed 0.5% to $1.1028, the most since 9 November.

The dollar index retreated on Wednesday, erasing all of the gains inspired by Trump's business-friendly stance after his November election victory.

The Australian dollar rose 0.4 per cent, climbing for a seventh straight day, the longest streak since October 2015. It eased back again in European trade to leave it at $1.1136 per euro and buying 110.97 Japanese yen.

The US currency was hurt as Treasury yields declined significantly with allegations against Trump lowering economic stimulus hopes. Spot gold XAU= hit $1,263.02 an ounce, its highest since May 1. [O/R] Global benchmark Brent crude rose 0.4 percent to $52 per barrel.

China increased its holdings of US Treasuries by the most in two years, a sign that the world's second-biggest economy is stabilizing and stricter capital controls have helped to stem capital flight.

  • Megan Austin