Dollar slides, stocks rise after dovish Fed statement

Wed Mar 16, 2016 4:56pm EDT
 
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By Rodrigo Campos

NEW YORK (Reuters) - The S&P 500 closed at its highest in 2016, leading global stock gains, while the U.S. dollar weakened after the Federal Reserve held interest rates steady while lowering expectations for the number of rate hikes this year.

The Fed noted that the U.S. economy continues to face external risks, but indicated that moderate growth would allow it to resume tightening monetary policy this year.

Fresh projections, however, pointed to two quarter-point rate hikes by year's end, down from an expected four back in December.

The expectation for lower rates dragged the dollar down and hurt stocks in the financial sector. But major U.S. indexes rallied on the back of the Fed statement, with basic materials and energy sector stocks leading the way.

Commodity prices added to gains, boosted by a weaker greenback.

The CBOE volatility index , a gauge of what equity investors are willing to pay for protection against a drop in the S&P 500, closed at its lowest since early December.

"The Fed struck a very dovish tone, marking down its projected rate increase trajectory, while noting overall resilience in the U.S. economy and the absence of inflation pressures," said Brian Dolan, head market strategist at DriveWealth LLC in New Jersey.

"This should be encouraging for risk sentiment and risk assets."   Continued...

 
Traders work on the floor of the New York Stock Exchange shortly after the opening bell in New York, March 14, 2016. REUTERS/Lucas Jackson