What you need to know
● Dollar soft after Federal Reserve takes cautious stance
● Treasury yields nudge up a touch after post-Fed slide
● S&P 500 futures just shy of record as FTSE 100 hits new peak
● Euro trades near five-week high after Dutch reject populists
● Gold rallies in the face of lower buck and bond yields
Federal Reserve chair Janet Yellen’s pledge that the central bank’s monetary normalisation will remain gradual has helped revive the market’s animal spirits, lifting stocks, bonds and gold, but hitting the dollar.
After raising interest rates as expected by 25 basis points to 0.75-1.0 per cent late in Wednesday’s session, Ms Yellen seemed to counter fears among some investors that the mooted fiscal stimulus of the Trump administration would require the Fed to hike borrowing costs at a faster pace.
“We have plenty of time to see what happens,” she said.
The dollar and Treasury yields, which move opposite to bond prices, fell sharply in the wake of Ms Yellen’s comments — though the downward pressure is subsiding on Thursday.
Describing the Fed’s move as a “dovish hike”, analysts at Citi said: “The world is slowly moving to a new rate paradigm”.
The dollar index, a measure of the buck against a basket of its peers, is 100.63, following up Wednesday’s 0.9 per cent slide with a 0.1 per cent dip.
Ten-year Treasury yields are inching up 2 basis points to 2.52 per cent, having traded at a two-and-a-half year high of 2.62 per cent before the Fed announcement. The even more policy sensitive US 2-year yield is up 1bp to 1.33 per cent. Early on Wednesday it had hit a seven-year high of 1.40 per cent.
The prospect of the Fed raising rates by another 25 basis points at its June meeting has fallen from about 50 per cent mid-session on Wednesday to 47 per cent, according to CME FedWatch.
US equity index futures suggest the S&P 500 will gain 5 points to 2,390, leaving the Wall Street barometer just 6 points shy of its record close hit at the start of the month.
What to watch
The Bank of England is due to give its monetary policy decision at 12:00 GMT. No change in rates is expected, but as ever traders will be keen to see if the BoE’s accompanying statement gives any clues to policy trajectory.
Sterling is down 0.1 per cent against the euro at £0.8737 and is easing 0.1 per cent to $1.2278.
Benchmark 10-year gilt yields are easing 1bp to 1.21 per cent.
Gains for commodity prices are helping resources stocks and adding to the feelgood mood delivered by the prospect of a flatter trajectory for US borrowing costs.
The pan-European Stoxx 600 is adding 0.5 per cent as rallying miners help push London’s FTSE 100 up 0.7 per cent to a record high of 7,421.
In Asia, Hong Kong’s Hang Seng index climbed 2.1 per cent as energy shares rebounded after several difficult sessions, while on the mainland the Shanghai Composite added 0.9 per cent.
Tokyo’s benchmark Topix index rose 0.1 per cent, climbing back from a fall at the open thanks to gains by energy and telecom stocks.
Benchmark yields on sovereign bonds are retracing a small part of Wednesday’s slide.
The 10-year German Bund is up 3bp to 0.44 per cent, having retreated from a 14-month high of 0.51 per cent on Tuesday.
But Dutch 10-years are off 2bp to 0.65 per cent as an element of credit risk is removed after Dutch voters rejected the anti-EU route in Wednesday’s election.
It had been thought that a good showing for the populist PVV party would embolden supporters of French far right presidential candidate Marine Le Pen. But the PVV’s poor showing is helping calm eurozone nerves, helping French 10-year paper slip by 1bp to 1.03 per cent.
This rationale may also be helping underpin the euro. The common currency is little changed at $1.0724, holding the 1.2 per cent jump that followed Ms Yellen’s comments.
The Japanese yen is 0.1 per cent stronger versus the greenback at ¥113.22, adding to Wednesday’s 1.2 per cent surge.
Emerging markets currencies also gained against the dollar, and many continue to find favour.
The Mexican peso, which jumped 2.3 per cent on Wednesday, is 0.1 per cent firmer at 19.1912 per dollar and trading at its strongest since the election of US President Donald Trump.
The South African rand is climbing 0.4 per cent to 12.7342 per dollar following a nearly 3 per cent gain in the previous session.
The idea of steady US monetary policy and a weaker buck is lifting dollar-denominated commodities.
Gold, which last week fell to a month-and-a-half low of $1,195 an ounce, is changing hands at $1,226 as it adds $7 to Wednesday’s $20 leap.
Base metals are in fine fettle, with Shanghai copper futures up more than 1 per cent and oil prices are building on Wednesday’s gains.
Data from the Energy Information Administration showed that total US crude stocks last week declined for the first time this year, as imports slowed. However, inventories at the Cushing, Oklahoma delivery hub rose more than expected.
Brent crude, the international benchmark, is up 1.2 per cent to $52.44 a barrel, back above $52 for the first time since Friday and erasing losses from earlier in the week. West Texas Intermediate, the US marker, is adding 1.1 per cent to $49.42.