Fed's Caution Propels Euro to One-Month High

Brittany BishopMar 19, 2017

World stock indexes surged to record highs on Thursday while the dollar traded close to a one-month low after the Federal Reserve hiked USA interest rates but signalled no pick-up in the pace of tightening.

At 9:37 a.m. ET, the Dow Jones Industrial Average was up 28.03 points, or 0.13 percent, at 20,978.13, the S&P 500 was up 0.65 points, or 0.03 percent, at 2,385.91 and the Nasdaq Composite was up 5.09 points, or 0.09 percent, at 5,905.14.

The pound hit a two-week high of $1.2373, up 0.6 percent after the Bank of England kept interest rates on hold but gave a handful of hints in voting results and its minutes that it might raise them soon.

Investors lodged large bets on the dollar after Donald Trump's USA presidential election win a year ago, expecting his mix of tax reform, capital repatriation and new public spending to raise inflation in the United States and in turn drive Fed rates higher. On Thursday the metal hit $1,233.13 USA, its highest since March 6. The People's Bank of China hiked the rate for its six-month and one-year medium-term lending facility and open-market repurchase operations by 0.1%.

In Europe, millions of Dutch voters go to the polls Wednesday in an election overshadowed by a blazing diplomatic row with Turkey, with all eyes on the fate of far-right MP Geert Wilders.

"If the Fed doesn't deliver the rate rise, it sure will shock the markets and cause the dollar to collapse", said Fawad Razaqzada at Forex.com. With evidence building that wages and consumer spending are finally slowing, however, money market pricing has pointed to there being little chance of the bank raising rates to cool an economy at a time when political risks to growth are rising.

Aided by stronger oil, Wall Street was cautiously firmer around mid-session in NY, with the Dow edging up around 0.3 percent.

Technology stocks did better, led by Oracle, which reported stronger revenue and earnings for its latest quarter than analysts expected.

SPDR Gold Trust GLD, the world's largest gold-backed exchange-traded fund, said its latest holdings stood at 837.06 tonnes down 2.37 tonnes, from the previous business day. Separately, retail sales rose 0.1% in February (http://www.marketwatch.com/story/us-retail-sales-barely-budge-in-february-2017-03-15).

U.S. Treasury yields, which slid after the decision, staged a recovery on Thursday and continued to rise on Friday. Brent crude ended the session 7 cents lower at $51.74 a barrel. The two-year yield dipped to 1.32 per cent from 1.34 percent, and the 30-year yield sank to 3.13 percent from 3.15 percent.

"Gold, copper and oil all rallied as the dollar dropped".

On Thursday, Hong Kong stocks were up 1.7 percent, Shanghai adding 0.8 percent and Seoul advancing 0.8 percent.

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