Asian stocks sold off and the dollar scaled an 11-week peak against major peers on Friday as investors braced for the risk of a hawkish tilt from Federal Reserve Chair Jerome Powell at Jackson Hole.
US yields stabilised below 14-year highs. Crude oil found its footing around one-month lows, but remained on course for a second weekly decline amid a firmer dollar and simmering China-centred worries about global growth.
Meanwhile, the People's Bank of China set a much stronger-than-anticipated official mid-point for the yuan - something it has done every day this week - to keep a floor under its currency amid the strains from a robust dollar and a sputtering economy.
MSCI's broadest index of Asia-Pacific shares sagged 1.2%, but remained on track for a 0.5% gain for the week, which would snap a three-week run of declines.
Nerves ahead of Powell's speech at the Fed's annual retreat for global central bankers, including the Bank of Japan's Kazuo Ueda and European Central Bank's Christine Lagarde, encouraged traders to cash in on this week's tech-led rally, punctuated by chip designer Nvidia's extremely strong financial results following Wednesday's closing bell.
The tech-centric Nasdaq slumped 1.87% on Thursday to lead losses of more than 1% across Wall Street's three major indexes, and futures indicated some further weakness at the reopen.
Pan-European Stoxx 50 futures also signalled no respite from Thursday's losses.
Japan's Nikkei tumbled 2%, with Nvidia supplier Advantest the biggest drag, crashing almost 10%.
Hong Kong's Hang Seng slid 1.1%, with a tech subindex dropping about twice that amount. Mainland blue chips drooped 0.6%.
"It's all down to Powell," said Matt Simpson, a senior market analyst at City Index.
"In all likelihood, he'll peddle the 'higher for longer' narrative which is likely already priced in, and that leaves the potential for a 'buy the rumour, sell the fact' response," Simpson said.
"However, there is also no real reason for Powell to strike a dovish tone," he added, "and that could mean an ugly end to the week for stocks, while the dollar shines."
The Fed has been raising rates since March 2022 in an effort to bring down inflation, and investors are looking for clarity on whether more rate increases are ahead and how long the Fed plans to hold rates high.
Fed officials sent mixed signals in the final run-up. Boston Philadelphia Fed President Patrick Harker telling CNBC he doubted the central bank will need to raise rates again, but also indicated he was not ready to predict when rate cuts might begin. Fed President Susan Collins said on Yahoo Finance's video channel that rates may be near or at a peak, "but certainly additional increments are possible."
The U.S. dollar index - which measures the currency against a basket of six developed-market peers, including the euro and yen - pushed as high as 104.27 in Asia, a level last seen in early June.
The euro sank to the lowest since mid-June at $1.0775.
Against Japan's currency, the dollar edged tentatively back toward last week's nine-month high of 146.545, trading as strong as 146.21.
Tokyo consumer price data on Friday, which front-runs nationwide figures, showed inflation remained well above the BOJ's target. However, the lag in pay raises may be more pivotal for steering policy.
"We do not expect the Bank of Japan to tighten monetary policy because the spike in inflation has not spilled over to a large acceleration in wage growth," CBA strategist Joseph Capurso wrote in a client note.
At the same time, if Powell is not considered "hawkish enough" by currency traders at Jackson Hole, the dollar may ease to around 145 yen to end the week, he said.
Benchmark 10-year Japanese government bond yields ticked up to 0.655% as they tried to bind equilibrium following a retreat to 0.645% on Thursday from the prior session's 9-1/2-year peak of 0.675%. The BOJ unexpectedly doubled the de-facto policy cap on the yield to 1% at the end of last month.
Equivalent U.S. Treasury yields ticked up in Asia time, last sitting at 4.2492% - pulling away from the previous session's low of 4.174% but well back from Tuesday's peak of 4.366%, the highest level since November 2007.
The Chinese yuan traded slightly weaker in offshore markets , slipping to 7.2908 per dollar. For the week though, it has firmed about 0.2%, pulling away from Thursday's 9-1/2-month trough of 7.349.
On top of strong signalling with the official mid-point, the PBOC was also directing domestic banks to scale back outward investments, shrinking the supply of yuan overseas.
In energy markets, crude prices rose slightly on Friday, but remained on track for weekly declines of between 1.5-2.5%. Brent crude rose 30 cents, or 0.4%, to $83.66 a barrel, while U.S. West Texas Intermediate crude was up 31 cents, also 0.4%, at $79.36 a barrel.