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Stock markets are softer as a weaker dollar boosts gold after the US Federal Reserve left interest rates unchanged.

Energy prices are lower and government bond markets relatively steady.

The US currency remains in the spotlight. The dollar index (DXY), which tracks the buck against a basket of its peers, is down 0.1 per cent to 99.50, having earlier in the session matched an eight week intraday low of 99.43. It is now at the lowest since November 14, shortly after the US election, possibly to the delight of those in the US administration who have been calling for a weaker currency.

The DXY hit a 14-year high of 103.82 at the start of the year as investors made bets that the then incoming Trump administration’s mooted policies of tax cuts, deregulation and infrastructure spending would boost the US economy and quicken the pace at which the Federal Reserve raised interest rates.

But, after keeping borrowing costs unchanged on Wednesday, the Federal Open Market Committee delivered what many in the market consider a dovish commentary on likely policy trajectory.

Analysts at Citi said the FOMC matched consensus forecasts for no rate hike and a little changed statement, but added that “perhaps the only new information was the lack of a hawkish signal that would increase the probability of a March rate hike or move forward the anticipated end of balance sheet reinvestments”.

“Market pricing of a 35 per cent chance of rate hike by March, 50 per cent by May, 100 per cent by June and just over two hikes in 2017 moved to slightly lower probabilities following the statement,” Citi noted.

Benchmark US 10-year Treasury yields, which fell back in the wake of the Fed’s comments on Wednesday, are steady for the current session at 2.48 per cent. Equivalent maturity German Bunds are up just 1 basis point to 0.48 per cent.

The dollar’s latest dip comes despite a sturdy report on US private sector job creation that bodes well for Friday’s non-farm payrolls report.

Adding to pressure on the greenback of late are complaints by the White House that US trade partners are suppressing their own currencies and concerns that president Trump’s protectionist stance could counteract his fiscal plans.

“The so-called Trump trades, and particularly the US dollar, have seen a correction this year, as President Trump’s rhetoric has shifted toward trade protection,” wrote strategists at Bank of America Merrill Lynch in a note to clients. “Our baseline assumes the US will avoid such policies, but we also see risks and markets could get more concerned in any case”.

What to watch
The Bank of England will reveal its monetary policy decision and publish its inflation report at 12:00 GMT. No change in interest rates is expected, but traders will be keen to get the central bank’s views on how the move to Brexit is shaping the economy.

In the meantime the pound is up 0.2 per cent to $1.2671 after the UK government won parliamentary approval to start the country’s divorce from the EU. Benchmark 10-year gilt yields are barely changed at 1.46 per cent.

A busy day for corporate earnings reports includes some big US names, such as ConocoPhillips, the energy group, and Amazon, the latter revealing its numbers after Wall Street’s closing bell.

Equities
US index futures suggest the S&P 500 will shed 10 points to 2,270, when trading gets under way later in New York, and this dip is damping sentiment across most stock markets.

The pan-European Stoxx 600 index is down 0.4 per cent as traders absorb results from the likes of Deutsche Bank, Shell and AstraZeneca.

Asian bourses weakened as the session wore on, with Tokyo’s broad Topix index down 1.1 per cent as exporters displayed distaste for the strengthening yen, currently up 0.5 per cent to ¥112.66 per dollar.

In Hong Kong, the Hang Seng index fell 0.6 per cent after rising as much as 0.4 per cent at the outset. Initial gains for consumer staples stocks were offset by falls in the real estate, telecoms and consumer discretionary segments. Markets in China remained closed for the lunar new year holiday.

Forex
The Australian dollar is up 0.9 per cent to A$0.7651, its highest in three months after data showed the country’s trade surplus had risen to a record high in December.

Paul Dales, chief Australia and New Zealand economist at Capital Economics, said the “surge in the trade surplus to a record high in December shows that the rise in commodity prices is boosting the economy and it has dramatically reduced the chances that Australia fell into a recession late last year”.

South Korea’s won was the other big winner in Asia, with a rise of 0.6 per cent against the dollar to Won1,145.20 after data showed consumer inflation grew at the fastest pace in four years in January.

Commodities
Oil prices are relinquishing some of the previous day’s gains. Brent crude, the international benchmark, is down 0.3 per cent at $56.62 per barrel after closing 2.2 per cent higher on Wednesday.

West Texas Intermediate, the US marker, is down 0.5 per cent at $53.63 per barrel after gaining 2 per cent the day prior.

Gold is enjoying the weaker greenback, up 0.6 per cent at $1,216 an ounce, regaining some of its lustre after a drop of 0.1 per cent on Wednesday ended three consecutive days of gains.

Copyright The Financial Times Limited 2017. All rights reserved.
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