Hong Kong – The dollar extended losses in Asia while equities rallied after the head of the Federal Reserve hinted at a softer pace of interest rate hikes, though investors remain wary about the weekend’s crunch trade talks between Donald Trump and Xi Jinping.
US markets were sent soaring Wednesday after Fed chief Jerome Powell said borrowing costs were still historically low but only “just below” the neutral level, a rate that neither stimulates nor restrains the economy.
While the central bank is widely expected to lift rates, his comment was a far cry from his characterisation last month of them being “a long way from neutral”.
The fear of higher US interest rates — fuelled by a surging economy — has been a key driver of a global equity sell-off over the past few months, while the dollar has soared as traders put cash into the US looking for better, safer returns.
Observers said the remarks provided some much-needed cheer ahead of the festive period.
“Powell’s dovish pivot reduces nagging concerns about vigorous interest rate hikes while providing the market with one of the best holiday gifts, a significant bounce in global equity markets,” said Stephen Innes, head of Asia-Pacific trade at OANDA.
The dollar was down against its major peers as well as high-yielding and emerging market currencies, which have suffered a painful 2018. The pound even managed to strengthen despite warnings about the dire consequences of a no-deal Brexit from the Bank of England.
Among the big winners, the South African rand and Mexican peso each climbed more than one percent, Indonesia’s rupiah was 0.9 percent up and Australia’s dollar jumped 0.8 percent.