By Alun John

HONG KONG, (Reuters) – Asian shares fell on Thursday, following a worldwide selloff. This was due to a heightened level of U.S. policymakers’ aggressive comments about tighter monetary policies, which kept the dollar close to its two-year high.

MSCI’s Asia-Pacific share index outside Japan, which is the broadest, fell by 0.53% and then dropped 1.9%.

Redmond Wong from Saxo Markets Hong Kong, said that the U.S. political and policy position has changed and that markets have begun to understand this.

Following all of the Fed speakers and minutes from yesterday’s meeting, it seems that quantitative tightening has been in the forefront. It is a goal to increase financial conditions and reduce aggregate demand. The Fed seems to be open to some flexibility and want to reduce the pressure on the labor market. This is a change from the past, when they were determined to preserve it.

The minutes of Wednesday’s Fed meeting, March 15-16, were released by the Fed. They showed that policymakers are increasingly concerned about the possibility of inflation spreading throughout the economy.

Lael brainard, the Governor of U.S. Federal Reserve stated Tuesday that she expected rapid reductions in central bank’s debt.

Wong indicated that positive real interest rates in the long term would benefit the global economy. However, in the medium-term there will likely be asset pricing.

The three largest U.S. benchmarks all fell overnight with the worst being down 2.22% Asia trade declined by 0.26% while Nasdaq futures dropped by 0.22%. [.N]

The situation in China is also a concern for investors, as it’s currently battling a new COVID-19 outbreak.

Shanghai is currently in lockdown and reported almost 20,000 cases of new disease on April 6. The vast majority were asymptomatic, according to the local government.

The Chinese blue chip market lost 0.4%, but the benchmark for Hong Kong was stable after mainland developers eased restrictions in the sector.

U.S. Treasuries were selling off quickly in the days leading up to the Fed’s minutes, before stabilizing.

In early Asia, the yield on Thursday was steady at 2.590%. However, the 2-year note yield was slightly higher at 2.4511%. These yields are closely watched and tend to be steeper than the other part. [US/]

On currency markets, the potential for quantitative tightening by the United States kept dollar at a near two-year high compared to a basket currencies.

This was supported also by the retreat of commodity currencies from their recent highs, due to an oil price drop. The euro fell further to a one month low as a result of what ING analysts call a “double danger” due to the negative economic consequences of Russia’s new sanctions, and uncertain outcomes for the French election. [FRX/]

However, oil prices rose after dropping to a low of three weeks the previous day after big consuming nations declared they would reduce their supply to meet tightening demand.

Futures rose 1.5% to $102.55 per barrel while prices for oil rose 1.3% at $97.35 per barrel [O/R]