Written by Raffi Boyadjian, Lead Investment Analyst at XM.com. An original version of this article can be found here.

Equity markets were mostly on the backfoot again on Tuesday as an expected rate cut in China failed to ease concerns about the flagging economy while constantly shifting rate hike expectations elsewhere added to investors’ apprehension.

The People’s Bank of China cut its one- and five-year loan prime rates by 10 basis points each following similar reductions to its other lending rates in the preceding week.

The anticipated move was initially seen by investors as a sign that policymakers in China are ramping up their efforts to revive the stalled recovery after Covid restrictions were completely lifted at the end of last year.

But the reaction suggests markets are unimpressed, deeming the size of the cut insufficient to spur growth, especially after a cabinet meeting on Friday also produced little in terms of meaningful fiscal stimulus.

Shares in Hong Kong took the brunt of the selloff in Asia, with Chinese indices declining more modestly.

The China-sensitive Australian dollar also came under pressure, suffering a double blow as the Reserve Bank of Australia revealed in its latest meeting minutes that the June rate hike was “finely balanced”.

The aussie is the worst performing major currency today, tumbling about 0.8% against the US dollar.

The mood was a little brighter in Europe where stocks were attempting to get back into positive territory, but this was proving to be a struggle with U.S. futures remaining in the red.

For equity traders, the primary focus this week is Jerome Powell’s semi-annual testimony before lawmakers on Wednesday and Thursday.

Other Fed speakers will also be hitting the podium in the coming days amid still intense speculation as to whether or not further rate hikes are on the cards this year.

The New York Fed’s John Williams is due to speak at 15:45 GMT.

Markets are currently anticipating just one additional 25-bps hike from the Fed versus the two telegraphed in the dot plot.

Even if the Fed were to stay on hold for the rest of the year, it’s unlikely it would begin cutting rates in early 2024 so some upside is possible for the dollar should Powell manage to do a better job of convincing investors during his Congressional hearings this week than he did in his press conference after last week’s FOMC decision.

Having rebounded somewhat from the post-Fed meeting lows, the dollar index is drifting lower today as the Japanese yen bounces back after days of heavy selling.

The yen had gone into freefall in the run-up to last week’s Bank of Japan decision as well as in the aftermath of policy being kept on hold as expected. Today’s reversal is probably due to profit-taking being triggered by the combination of more verbal intervention warnings by Japan’s finance minister and the dollar/yen pair approaching a key technical level – the 61.8% Fibonacci retracement around 142.50.

Unusually, the 10-year Japanese government bond yield has also plunged in recent days so the yen’s rebound is likely temporary.

In other currencies, the pound is trading somewhat lower below $1.28 ahead of tomorrow’s UK CPI data, which could determine the size of the rate increase from the Bank of England the following day.

Sterling is the best performing major currency so far this year but there’s a danger that markets have overpriced the scale of tightening that’s yet to come from the BoE.

The euro, meanwhile, is slightly firmer despite weaker-than-expected producer prices out of Germany today and the ECB’s chief economist Philip Lane refusing to commit to a hike beyond July.