HONG KONG: The dollar and US Treasury yields fell, while Asian equities rallied Thursday after the Federal Reserve indicated it could soon cut interest rates, adding to optimism of a breakthrough in the China-US trade row.
Oil prices extended already strong gains after Iranian claims it had shot down a US drone in its airspace added to geopolitical tensions, reports AFP.
The softer slant from the US central bank provided more support to global investors, who were already in buoyant mood after Donald Trump flagged positive talks with China’s Xi Jinping and said they would meet next week.After a much-anticipated meeting, Fed boss Jerome Powell said officials felt the case for a reduction had “strengthened”, citing the trade standoff with China and weak inflation, adding it would “act as appropriate” to support growth.
The bank also dropped the word “patient” in describing its assessment of economic data, fuelling speculation of a reduction as soon as July.
“The forward guidance from the Fed was no longer about being patient but being pragmatic,” said Kerry Craig, global market strategist at JP Morgan Asset Management. “As inflation is taking longer to return to target and trade uncertainty is weighing on the global outlook, the Fed is singing a dovish tune.”
He added that Powell “walked a fine line, highlighting a level of confidence in the US economy, even as growth is expected to slow and vulnerabilities from global politics increase”, which was enough not to cause concern to traders.
Analysts at NAB bank said “the change in the Fed’s bias has encouraged the market to increase its expectations that a new round of easing is just around the corner”.
The news hit the dollar, which fell across the board on foreign exchanges with higher-yielding units boosted by a pick-up in risk sentiment. The South African rand was 1.8 percent higher, South Korea’s won gained 1.2 percent and Canada’s dollar rose 1.1 percent. There were also big gains for China’s yuan, the Australian dollar, the Thai baht and Mexican peso.The dollar was even down against the euro, which has come under pressure since the European Central Bank hinted Tuesday at its own rate cuts, and the Brexit-battered pound.