Markets mostly fell on Tuesday and the dollar extended gains as investors bet on quicker Federal Reserve monetary tightening after boss Jerome Powell was nominated for a second term while oil fell on talk the United States was planning to release some of its reserves.

While Powell was widely expected to get the nod from Joe Biden to continue to head the central bank, the news saw all three main Wall Street indexes drop from intra-day highs, with the Nasdaq ending down more than one per cent owing to tech firms’ susceptibility to higher interest rates.

Surging prices – caused by a pick-up in demand, high energy costs and supply snarls, among other things – have forced several countries to lift borrowing costs and move away from the ultra-easy measures put in place at the start of the pandemic. The Fed has yet to move, instead just this month starting to taper its bond-buying programme, but expectations are for it to raise rates from the middle of next year, with some observers predicting another two before 2023. After being nominated by Biden, Powell pledged to use “our tools to support the economy and a strong labour market and to prevent higher inflation from becoming entrenched”.

Hong Kong led losses in Asia, dropping more than one per cent as tech firms tracked their US counterparts lower. There were also losses in Singapore, Seoul, Taipei, Mumbai and Jakarta, though Sydney, Shanghai, Wellington, Bangkok and Manila edged up. Tokyo was closed for a holiday.

The dollar built on the strong rally it enjoyed on Monday, briefly rising above the 115-yen level for the first time since 2017, while it was close to a one-year high versus sterling.

Crude prices down

The greenback was also up against a range of other currencies, including the Australian and New Zealand dollars, South Korean won and Indonesian rupiah. Despite the selling on equities in New York and parts of Asia, analysts said Powell’s nomination over the more doveish Lael Brainard – who was put forward as vice chair – should provide support.

“Powell’s renomination removes a potential negative from the markets and provides the certainty that investors crave,” said George Ball, of financial services firm Sanders Morris Harris. “Powell is sound, tested, respected and familiar to markets.” He added that while markets will not rise sharply, replacing Powell “could have triggered major downward pressure on stocks, as investors dislike uncertainty and the unknown”.

Powell’s renomination removes a potential negative from the markets and provides the certainty that investors crave. Powell is sound, tested, respected and familiar to markets.- George Ball of Sanders Morris Harris

But Robert Schein, at Blanke Schein Wealth Management, said the fed chief still had his work cut out. “While investors no longer have to wonder about who will be leading the Federal Reserve for the next few years, the next big dilemma the central bank faces is how to normalise monetary policy without upsetting markets.”

Oil fell on speculation the United States and several other top consumers, including South Korea, India and Japan, are considering an announcement to release some of their strategic reserves in a bid to temper the surge in prices that has helped fan inflation. However, OPEC and other major producers warned that such a move could lead them to reconsider continuing with their monthly output increases.

“A 35-million barrel release from the US would be significant,” said Warren Patterson, of ING. “Once you consider potential volumes from others, we are looking at something pretty substantial. The risk of further COVID related restrictions this winter and potential (strategic petroleum reserve) releases might be enough to persuade OPEC+ to pause supply increases.”