Asian and European stocks markets rallied and the dollar showed some weakness Thursday after the Federal Reserve announced a bumper interest-rate cut and pledged further reductions as inflation cools.
London’s FTSE 100 stocks index jumped more than one percent and the pound strengthened against the dollar, with the Bank of England expected to keep UK borrowing costs on hold in an announcement due 1100 GMT.
In the eurozone, Paris surged 1.8 percent and Frankfurt won 1.3 percent nearing midday. Tokyo closed up 2.1 percent, with Hong Kong not far behind.
“Global markets had been on edge ahead of the Fed decision, but… have seen a solid recovery in risk appetite” thereafter, noted Chris Beauchamp, chief market analyst at online trading platform IG.
The US central bank on Wednesday lowered borrowing costs for the first time since the start of the Covid pandemic by opting for a reduction of 50 basis points.
Its choice of an aggressive cut, as opposed to trimming rates by 25 basis points, split opinion among analysts, with some warning it could reignite inflation, while others said it showed the bank was keeping ahead of the curve in supporting the economy.
The bank’s “dot plot” guidance indicated more sizeable easing over the next two years.
Fed boss Jerome Powell said the economy was in “good shape”, pointing to lower inflation and solid growth.
“The labour market is in a strong place. We want to keep it there,” he told reporters.
Beauchamp said Powell “seems to have convinced investors that the recent weakness in jobs data was no reason to be concerned”.
Wall Street was predicted to open with strong gains, having dipped following the Fed decision.
“There is a lot to digest and it’s understandable the market reaction was initially mixed,” said Russ Mould, investment director at AJ Bell.
“US indices went up on the news, then pulled back and stayed flat, and now futures prices imply another leg up when Wall Street opens on Thursday.”
Gold traded close to a new record-high of slightly above $2,600 an ounce that was reached in the wake of the Fed decision. Commodities priced in dollars become more attractive as the unit weakens, while gold is also viewed as a haven investment.
– Key figures around 0945 GMT –
London – FTSE 100: UP 1.1 percent at 8,346.97 points
Paris – CAC 40: UP 1.8 percent at 7,581.95
Frankfurt – DAX: UP 1.3 percent at 18,963.15
Tokyo – Nikkei 225: UP 2.1 percent at 37,155.33 (close)
Hong Kong – Hang Seng Index: UP 2.0 percent at 18,013.16 (close)
Shanghai – Composite: UP 0.7 percent at 2,736.02 (close)
New York – Dow: DOWN 0.3 percent at 41,503.10 (close)
Pound/dollar: UP at $1.3277 from $1.3207 on Wednesday
Euro/dollar: UP at $1.1176 from $1.1120
Dollar/yen: UP at 142.84 yen from 142.29 yen
Euro/pound: DOWN at 84.15 pence from 84.17 pence
Brent North Sea Crude: UP 1.3 percent at $74.60 per barrel
West Texas Intermediate: UP 1.0 percent at $71.61 per barrel
dan-bcp/lth
