(Bloomberg) -- Shares in Asia slipped on renewed concerns about the health of the banking sector and ahead of a Federal Reserve decision Wednesday where policymakers are expected to add to their rate-hike cycle.

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MSCI Inc.’s Asia Pacific Index headed for its first loss in five days with benchmark indexes in Hong Kong, South Korea and Australia all declining. Energy and banking shares were among the biggest losers. Markets are shut in Japan and mainland China for holidays, and there’s no trading of cash Treasuries in Asia hours. The dollar weakened.

The S&P 500 fell 1.2% Tuesday as US regional lenders PacWest Bancorp and Western Alliance Bancorp both tumbled at least 15%. That came just a day after JPMorgan Chase & Co.’s acquisition of First Republic Bank seemed to bolster confidence in the sector. US futures ticked marginally higher in Asian trade and Euro Stoxx 50 futures gained.

Swap traders are pricing a more than 90% probability the Fed will raise borrowing costs by 25 basis points later Wednesday, bringing the key rate to the highest since 2007. Market pricing also indicates the increase will mark the peak of the tightening cycle before weaker growth prompts the central bank to cut rates later in the year.

The US central bank is likely to hike this week but signal a pause is coming in June, said Tony Sycamore, a market analyst at IG Australia Pty in Sydney. “The Fed is unlikely to open the door to possible rate cuts this year which could have been the catalyst for another leg higher” for US equities, he said.

The dollar fell against all its Group-of-10 peers as traders positioned for the Fed decision. Treasury futures traded in a narrow range in Asia after jumping Tuesday as concerns over the banking sector boosted demand for haven assets.

Uncertain Mood

A lack of clarity regarding the US debt ceiling added to the uncertain mood. Between now and June 1 — the date by which the Treasury Department may run out of sufficient cash — President Joe Biden and members of the House and Senate are scheduled to be in town at the same time for the sum total of one week to find a solution.

“It is a key event risk in the next few weeks and possibly a month or two,” Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management in Singapore, said on Bloomberg Television. “It feeds into our overall defensiveness, which we are advocating in our asset allocation recommendations to be long fixed income in this kind of an environment and underweight equities.”

Meanwhile, US economic data pointed to a cooling of the labor market, with the number of job openings in March dropping to the lowest level in two years.

In Europe, BNP Paribas SA reported higher revenue from debt trading and global banking in the first quarter, while Deutsche Lufthansa AG said it expected earnings to rise above pre-pandemic levels in the second quarter as air travel rebounds.

Oil edged lower in Asia after tumbling more than 5% on Tuesday, and gold was little changed.

Key events this week:

• US ADP employment, S&P Global US services PMI, US ISM services, Wednesday

• Fed Chair Jerome Powell holds news conference following rate decision, Wednesday

• US initial jobless claims, trade balance, Thursday

• European Central Bank rate decision, followed by ECB President Christine Lagarde’s news conference, Thursday

• US unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures rose 0.2% as of 6:30 a.m. London time. The S&P 500 fell 1.2%

• Nasdaq 100 futures were little changed. The Nasdaq 100 fell 0.9%

• Euro Stoxx 50 futures rose 0.5%

• South Korea’s Kospi index fell 1%

• Hong Kong’s Hang Seng Index fell 1.8%

• Australia’s S&P/ASX 200 Index fell 1.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro rose 0.2% to $1.1022

• The Japanese yen rose 0.4% to 135.97 per dollar

• The offshore yuan was little changed at 6.9360 per dollar

• The Australian dollar was little changed at $0.6668

• The British pound rose 0.2% to $1.2489

Cryptocurrencies

• Bitcoin fell 0.7% to $28,491.75

• Ether fell 0.5% to $1,861.85

Bonds

• Australia’s 10-year yield declined five basis points to 3.40%

Commodities

• West Texas Intermediate crude fell 0.1% to $71.57 a barrel

• Spot gold was little changed

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Richard Henderson.

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