Dollar down, bonds elated as Fed takes dovish tone

Wed Mar 18, 2015 7:34pm EDT
 
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By Wayne Cole

SYDNEY (Reuters) - The dollar nursed punishing losses in Asia on Thursday after investors priced in a later start and a slower pace for future U.S rate rises, slashing Treasury yields and firing up Wall Street stocks.

The formerly friendless euro found itself up at $1.0835 EUR=, having jumped 2.8 percent on Wednesday, while oil held gains of 5 percent as the dollar retreat lifted commodities.

Early signs were also promising for regional stocks with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS up 0.9 percent.

Short-term U.S. yields boasted their biggest drop in six years after the Federal Reserve trimmed forecasts for inflation and growth, and said unemployment could fall further than first thought without risking a spike in inflation.

The median projection for the Fed funds rate at the end of 2015 was cut to 0.625 percent, down half a point from December.

Fed Chair Janet Yellen also sounded uncomfortable with the strength of the dollar, saying it would be a "notable drag" on exports and a downward force on inflation.

"There was nothing in the statement to suggest that the Fed is leaning toward a June hike," said Michelle Girard, chief U.S. economist at RBS.

"Developments leave us feeling more comfortable with our official call for the first rate hike being in September."   Continued...

 
A picture illustration shows Euro and U.S. dollar banknotes in Sarajevo March 9, 2015. REUTERS/Dado Ruvic