Asian shares dropped to a one-month low, U.S. stock futures fell and the dollar rose on Tuesday as hawkish remarks from central bankers tempered expectations for interest rate cuts and traders waited to hear from the Fed's influential Christopher Waller.
MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1% to its lowest since mid-December. Japan's Nikkei (.N225) looked set to snap a sharp six-session winning streak with a 0.7% dip away from Monday's 34-year high.
U.S. markets were closed for a holiday on Monday, but S&P 500 futures were 0.4% lower in Asia trade, Fed fund futures fell - reflecting a slight cooling in interest rate cut expectations - and short-term Treasury yields rose.
Two-year yields were up 6.5 basis points in early Tokyo trade and tugged the dollar to one-month highs on the risk-sensitive Australian and New Zealand dollars.
On Monday European bonds were sold after European Central Bank officials pushed back on market bets on rate cuts. EUR/GVD
Bundesbank President Joachim Nagel said it was too early to discuss cuts and Austrian central bank governor Robert Holzmann warned not to bank on a cut at all this year.
"The upshot ... was to see money markets scaling back the implied probability of a 25 bp ECB cut in March to 26% from 40%," said NAB currency strategist Ray Attrill.
Two-year German bunds rose more than 7 bps to 2.6% and 10-year bunds rose 5.4 bps to 2.2%, lending support to the euro, which climbed to a three-week high against the Swiss franc .