Global stocks gain, dollar down on Fed

United States stocks added to gains, while Treasury yields fell and the dollar weakened late yesterday, after the Federal Reserve raised interest rates for the second time in three months but did not flag any plan to accelerate the pace of monetary tightening.

"Whether folks agree or disagree with the need to hike, the key here is that the Fed has signalled to markets, and importantly USA and global businesses, that it is in control and the economy is moving as expected", said Greg McKenna, chief market strategist at AxiTrader, in a note.

Against the yen, the dollar edged up 0.1 percent to 113.44, down 1.2 percent for the week ahead of a Tokyo public holiday on Monday.

The euro climbed to a five-week high of $1.0746 on Thursday, after surging 1.2 percent overnight.

The euro rose to a one-month high after Dutch Prime Minister Mark Rutte's Liberals easily beat the anti-Islam Freedom Party of Geert Wilders.

"The repercussions for France are the key aspect of this election, and if we see that the populists are keeping their momentum that will be reflected in French government bonds", DZ bank strategist Christian Lenk said.

Although the US central bank delivered an interest rate increase on Wednesday as widely anticipated, it did not alter its earlier forecast for a total of three rate increases this year. "The dot plot was left mostly unchanged, shaking out expectations among dollar bulls that had gone too far", said Koji Fukaya, president of FPG Securities in Tokyo.

The central bank will purchase government bonds so that the yield of 10-year JGBs will remain at around zero percent.

The focus is now on BOJ Governor Haruhiko Kuroda's post-meeting briefing at 0630 GMT for clues on the central bank's stance on whether and when to pull back its massive stimulus programme.

The pound was up 1.5 percent for the week, after outgoing BoE policymaker Kristin Forbes unexpectedly voted for a rise in interest rates, and others signalled it would not take much for them to follow suit.

If ever there was a time when the dollar would consolidate and move lower, Wednesday provided the ideal opportunity as the market built in expectations of a more aggressive rate-hike pace, he said. On Thursday, the Bank of Japan held its policy steady as expected and maintained a pledge to cap long-term interest rates around zero. Sterling gained to a week's high of $1.2310, rebounding from the previous day's eight-week low hit on worries of a painful and prolonged Brexit. While the Federal Reserve "is the first cab off the rank" markets will also be watching for the Bank of Japan, Bank of England, Swiss National Bank, local GDP data and Australian labour data and the Dutch elections.

The Australian dollar was off 0.1 per cent at US$0.7558 in lacklustre trade, but avoided another test of the recent seven-week low of US$0.7491. The kiwi fell as New Zealand's economy grew less than economists forecast. The kiwi had risen to a 12-day peak of $0.7050 the previous day.

  • Zachary Reyes