Dollar sinks, Asia stocks rally as dovish Fed spurs rush to risk

Published : 20 Jun 2019 06:51 PM | Updated : 03 Sep 2020 05:16 AM

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 own a US drone in its airspace added to geopolitical tensions, agency reports. he softer slant from the US central bank provided more support to global nvestors, who were already in buoyant mood after Donald Trump flagged ositive talks with China’s Xi Jinping and said they would meet next week.

After a much-anticipated meeting, Fed boss Jerome Powell said officials elt the case for a reduction had “strengthened”, citing the trade standoff ith China and weak inflation, adding it would “act as appropriate” to upport growth.

The bank also dropped the word “patient” in describing its assessment of conomic data, fuelling speculation of a reduction as soon as July. The forward guidance from the Fed was no longer about being patient but eing pragmatic,” said Kerry Craig, global market strategist at JP Morgan sset Management. “As inflation is taking longer to return to target and rade uncertainty is weighing on the global outlook, the Fed is singing a ovish tune.”

He added that Powell “walked a fine line, highlighting a level of onfidence in the US economy, even as growth is expected to slow and ulnerabilities from global politics increase”, which was enough not to cause oncern to traders.

Analysts at NAB bank said “the change in the Fed’s bias has encouraged the arket to increase its expectations that a new round of easing is just around he corner”.

The news hit the dollar, which fell across the board on foreign exchanges ith higher-yielding units boosted by a pick-up in risk sentiment. The South frican rand was 1.8 percent higher, South Korea’s won gained 1.2 percent and anada’s dollar rose 1.1 percent. There were also big gains for China’s yuan, he Australian dollar, the Thai baht and Mexican peso.

The dollar was even down against the euro, which has come under pressure ince the European Central Bank hinted Tuesday at its own rate cuts, and the rexit-battered pound.

– Iran fans oil rally –

The prospect of lower borrowing costs lifted equity markets on Wall treet, while the yield on US Treasuries fell below two percent for the first ime since 2016 — having been above three percent in November.

Tokyo ended 0.6 percent higher as traders shrugged off a stronger yen, ong Kong rose 1.2 percent and Shanghai finished 2.4 percent higher, with ydney up 0.6 percent.

Singapore added 0.8 percent, while Taipei and Manila each gained 0.1 ercent up, though Wellington and Jakarta were slightly lower. n early European trade London rose 0.3 percent, Paris jumped 0.7 percent nd Frankfurt climbed 0.8 percent.

Focus now turns to the meeting between Trump and Xi on the sidelines of he G20 summit in Osaka next week, with optimism at its highest since last onth after the US president’s tweet about “a very good telephone onversation” with his Chinese counterpart.

On oil markets both main contracts were up more than two percent after ehran said it had shot down a US “spy drone”.

Crude had already been well up after official data showed a drop in US nventories — indicating a pick-up in demand — and news OPEC and other roducers led by Russia had agreed a date to discuss further caps. he dollar’s sharp drop also provided healthy support, making the ommodity more attractive to investors using other currencies.

Iran’s Revolutionary Guard said it had downed the US aircraft after it iolated Iranian airspace near the Strait of Hormuz, in the latest incident o stoke tension in the strategic sea lane. The development comes after ehran was blamed for attacks on two tankers in the strategically crucial ulf of Oman.

There was no immediate reaction from the United States but the move adds o concerns of a flare-up between the old foes in the region. This will only stoke tensions in the region and produce short-term upport for oil prices,” said Neil Wilson, chief market analyst at “We await to see whether this escalates further — the response rom the White House will be important.”

– Key figures around 0810 GMT –

Tokyo – Nikkei 225: UP 0.6 percent at 21,462.86 (close)

Hong Kong – Hang Seng: UP 1.3 percent at 28,550.43 (close)

Shanghai – Composite: UP 2.4 percent at 2,987.12 (close)

London – FTSE 100: UP 0.3 percent at 7,428.08

Euro/dollar: UP at $1.1288 from $1.1231 at 2100 GMT

Pound/dollar: UP at $1.2696 from $1.2646

Dollar/yen: DOWN at 107.68 yen from 108.08 yen

Oil – West Texas Intermediate: UP $1.59 at $55.56 per barrel

Brent North Sea: UP $1.64 at $63.46 per barrel

New York – Dow: UP 0.2 percent at 26,504.00 (close)