Dubai: The US dollar bore the brunt of dovish statement from the US Federal Reserve by falling to the lowest level in five months, while global equities jumped along with UAE indices.
On Wednesday, US Federal Reserve officials lowered their projections for rate hikes to two this year, while keeping the rates steady, and stressed their commitment to reaching the 2 per cent inflation target,
“The FOMC statement released yesterday was dovish and many were expecting that the Fed will come up with a little more hawkish tone. The element which brought some much weakness for the dollar is the revision in their rate hike trajectory,” Naeem Aslam, chief market analyst with AVA Trade told Gulf News.
The Dollar Spot Index, which tracks the US currency against 10 major peers, fell 1.25 per cent to be at 94.668, after losing 1.1 per cent in the last session.
Asian equities jumped earlier on Thursday, while US markets were swinging between gains and losses.
“The equity market unquestionably love this news because Fed’s previous projection were neck breaking. The weakness for the dollar may continue but don’t expect it to fall off the cliff,” said Aslam.
MSCI’s broadest index of Asia-Pacific shares outside Japan climbed to a two-month high as Australian stocks added 1 per cent. The Dow Jones Industrial Average was 0.19 per cent higher at 17,359.52, while S&P 500 index was down 0.14 per cent lower at 2,024.44. The Abu Dhabi index rose more than 3 per cent, while the Dubai index rose more than 2 per cent.
London main FTSE-100 index closed 0.6 per cent higher, with investors happy with the government’s budget plans outlined by finance minister George Osborne. Osborne said the government would seek additional spending cuts totalling $5.0 billion, but also cut the forecast for economic growth this year to 2.0 per cent due to turbulence in global financial markets and slower growth in China.
Main drivers
“The weakening USD is benefiting EM [emerging markets] and US equities while hurting European and Japanese equities short-term. The main drivers for equities this year are still revenue or earnings growth, Brexit and China growth. Our general view on equities is that they are a bit on the expensive side given the current outlook,” said Peter Garnry, Head of Equity Strategy at Saxo Bank.
Global stocks had been on a downtrend since the start of the year, with investors losing more than $9 trillion, but markets have recovered from mid-January on stability in oil prices even as growth concerns remain on China, the world’s second biggest economy.
Meanwhile on Thursday, All six metals advanced on the London Metal Exchange, supported by a weakened US currency. Copper for delivery in three months jumped 2.6 per cent to $5,064 a metric tonne as exchange inventory fell 3.7 per cent, the biggest decline since May 2014. Gold for immediate delivery climbed 0.6 per cent to $1,270.40 an ounce.
