US and European equity futures were marginally higher while Japanese shares bucked the wider trend in Asia by reversing initial losses. 

The Hang Seng Index dropped about 1.5% as it headed for a third-straight day of losses before a holiday on Thursday in Hong Kong and the mainland. The yuan weakened past the closely watched 7.2-per-dollar level for the first time since November.

Investors remain disappointed with Beijing for so far failing to issue specific support measures and banks offering only modest rate cuts. The view was also reflected in US-listed Chinese stocks, which earlier suffered their biggest decline in three months. 

Economic bellwether FedEx Corp. added to the mixed picture, tumbling in extended US trading after its outlook fell short of analyst consensus estimates on weakened demand. The S&P 500 notched its first back-to-back losses in nearly four weeks Tuesday as trading resumed after a long holiday weekend. 

Investors in US stocks are caught between fear of missing out and concerns markets have run too far, too fast as they contend with overblown valuations and hawkish signals from the Fed. 

Bond yields fell in Asia, following the lead from US Treasuries on Tuesday. The yield on the 10-year Australian security dropped about six basis points while its Japanese equivalent fell by one basis point. Treasury yield rose fractionally on Wednesday.

A gauge of dollar strength inched up after the greenback advanced against all of its G10 counterparts on Tuesday except the yen. The Japanese currency weakened slightly on Wednesday.

Fed chair Jerome Powell is scheduled to give his semi-annual report to Congress on Wednesday, with Bloomberg Intelligence expecting a hawkish tone. While the policymakers kept interest rates unchanged at their meeting last week, their forecasts imply around two additional quarter-point rate hikes or one half-point increase. 

“He will come on and try to remain hawkish,” Mahjabeen Zaman, head of FX research at ANZ Bank in Sydney, said on Bloomberg Television. She expects one more rate hike from the Fed while noting the risk of more increases. Looking longer term, Zaman sees downward pressure on the dollar after the Fed reaches its rates peak and for currencies more broadly to take their cues from growth differentials.

Elsewhere in markets, oil rose slightly as traders weighed China’s outlook and prepared for commentary from Powell. Gold was little changed after dropping 0.7% on Tuesday. DM