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Dollar slides on dovish Fed outlook

Thursday 07:05 GMT

What you need to know

  • Dollar slides to 14-month low on dovish Fed outlook
  • Euro at 30-month high against the dollar, yen also up
  • FTSE futures anticipate the index will open 0.1 per cent higher
  • Benchmark Treasury yields dip
  • Wall St stocks hit new highs

Hot topic

Markets are absorbing the US Federal Reserve’s tacit acknowledgment that inflation remains softer than it had expected, extending the recent risk-taking mood.

The Fed kept rates unchanged at 1 per cent to 1.25 per cent at yesterday’s meeting — as expected. But in a sign of resolve on its policy committee, the US central bank said in a statement that it was ready to start paring back the size of its balance sheet “relatively soon” as long as the economy stays on track.

Although the Fed said it still expected its 2 per cent inflation target to be met in the medium term, traders viewed the remarks as dovish, indicating a diminishing chance of interest rate rises in the near term.

Equities

European bourses are braced for a flurry of corporate earnings results on Wednesday, in what will be one of the biggest days of the year for trading updates.

Futures tip the FTSE 100 to open 0.1 per cent higher in Thursday’s trading, while the S&P 500 is set to open up 0.2 per cent.

The anticipated rises follow Wednesday’s trading in which US indices hit new record highs following comments from the US Federal Reserve.

Asia Pacific equities were gaining broadly on Thursday as emerging markets climbed.

With inflation expectations dampened, lower borrowing costs should continue to benefit emerging markets, which have performed particularly well this year in Asia.

Japan’s Topix was up 0.4 per cent as a drop in the financials segment offset gains elsewhere.

Taiwan’s Taiex index was up 0.9 per cent, buoyed by a 2.2 per cent rise from shares in Hon Hai.

In Australia the S&P/ASX 200 was up 0.2 per cent despite a firmer Australian dollar, while Hong Kong’s Hang Seng index rose 0.4 per cent.

Forex

The dollar index, a measure of the greenback against a basket of its peers, was down 0.3 per cent on Thursday near a 13-month low following a 0.4 per cent fall in the previous session after the Fed’s statement.

The euro is steady at $1.1731, near a two year peak, and sterling is gaining 0.2 per cent to $1.3134, trading at its highest since September 2016

The renminbi has gained further on the dollar in the wake of comments from the US Federal Reserve, pushing the Chinese currency to a new record level for the year to date.

Fixed income

Yields on 10-year US Treasuries partially reversed Wednesday’s falls in the Asia trading day, rising a fraction of a basis point to 2.28 per cent.

Sovereign bonds across the Asia Pacific region were gaining across the board on Thursday, recouping the previous day’s losses.

The 10-year Australian government bond yield, which moves inverse to price, was 3 basis points lower at 2.693 per cent on Thursday, while that on the equivalent Japanese note was 1bp lower at 0.071 per cent.

Ten-year South Korean government bonds saw yield fall by 3bp to 2.216 per cent.

Commodities

Gold rose to a six-week high during Asia trading hours on Thursday, hitting an intraday peak of $1,264.98 an ounce following the Fed’s announcement. At the European open the precious metal was adding $1 to $1,262.18.

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