The dollar lost ground against other currencies on Thursday after the head of the Federal Reserve was seen as effectively flagging a cut in interest rates later this month.
In the first day of closely watched congressional testimony, Jerome Powell said the case for lower borrowing costs “had strengthened” owing to headwinds caused by global trade uncertainty.
“It’s safe to say that investors were pleased with Jerome Powell’s first day of testimony on Wednesday, with equity markets jumping on his dovish assessment,” said Oanda analyst Craig Erlam.
US equities, which had surged on Wednesday with the Nasdaq ending at a record high, continued to push higher at the opening bell on Thursday.
“The Fed Chairman doesn’t typically provide strong and direct messages on policy direction, which makes predicting future rate movements all the more difficult. But Wednesday’s message was clear, the data is softening — particularly on the inflation side — and downside risks are significant,” Erlam said.
In European afternoon trading, the DAX 30 in Frankfurt and the CAC 40 in Paris both pushed higher, while London’s blue-chip FTSE index slipped fractionally on profit-taking.
Most Asian markets had followed Wall Street’s lead, with Hong Kong jumping 0.8 percent and Tokyo ending the day 0.5 percent higher.
FXTM analyst, Hussein Sayed, said the markets had clearly priced in a quarter-point reduction in US interest rates.
But now, “bets for a (half-point) rate cut have increased significantly after Powell’s testimony,” he said.
Nevertheless, the need for such a big cut also had its negative side, the expert continued.
“This may suggest that the US economic expansion is at a greater risk than what recent data are showing and may also be seen as political influence from the White House,” Sayed warned.
Oil extends rally
Traders said investors were now looking forward to Powell’s second day on Capitol Hill.
Higher-than-expected June inflation data didn’t seem to dent expectations that the Fed would go ahead with a rate cut.
Consumer prices rose 0.1 percent month-on-month, while 12-month inflation excluding volatile energy and oil prices, added a tenth of a percentage point to 2.1 percent.
“One could tell just how locked in on the interest rate issue the market is with the release of the Consumer Price Index for June,” said market analyst Patrick O’Hare at Briefing.com.
“The key takeaway from the report was that the (year-on-year) uptick in core CPI should seemingly diminish the prospect of a 50-basis points rate cut at the July meeting.”
Oil prices extended the previous day’s surge that came on the back of data showing a bigger-than-expected plunge in US oil inventories as well as a brewing storm in the Gulf of Mexico that could hit production.
British accusations that Iranian boats tried to “impede the passage” of a British tanker in the Strait of Hormuz reinforced geopolitical concerns.
Key figures around 1330 GMT
London – FTSE: DOWN less than 0.1 percent at 7,525.86 points
Paris – CAC 40: UP 0.3 percent at 5,582.67
Frankfurt – DAX 30: UP 0.1 percent at 12,386.88
EURO STOXX 50: UP 0.3 at 3,511.26
New York – Dow: UP 0.6 percent at 26,955.60
Tokyo – Nikkei 225: UP 0.5 percent at 21,643.53 (close)
Hong Kong – Hang Seng: UP 0.8 percent at 28,431.80 (close)
Shanghai – Composite: UP 0.1 percent at 2917.76 (close)
Euro/dollar: UP at $1.1255 from $1.1251 at 2100 GMT
Pound/dollar: UP at $1.2552 from $1.2504
Dollar/yen: DOWN at 108.25 yen from 108.46 yen
West Texas Intermediate: UP 14 cents at $60.57 per barrel
Brent North Sea crude: UP five cents at $67.06 per barrel