Asian shares rebounded, gold prices surged, and Japan’s Nikkei index reached a historic high on Thursday following the U.S. Federal Reserve’s reaffirmation of its plans to reduce interest rates.
The U.S. dollar experienced a slight decline, and traders marginally raised their expectations for a rate cut by the Fed in June. Japan’s Nikkei surged by 1.5% to surpass the 40,000 mark in early trading, reaching a new peak. MSCI’s broadest index of Asia-Pacific shares outside Japan also soared by 1.6%. Meanwhile, spot gold, typically favored during periods of lower interest rates as bond yields decrease, soared to an all-time high of $2,222 per ounce.
During its recent meeting, the Fed maintained U.S. rates at their current levels of 5.25% to 5.5%, as anticipated, while slightly revising upward its inflation projections. Despite the uptick in inflation forecasts, policymakers retained their median projection for three 25 basis point rate cuts throughout the year, unchanged from December.
Standard Chartered strategist Steve Englander remarked on the Fed’s projections, noting that despite the higher recent inflation figures, policymakers anticipate monetary easing. The decision to stick with three rate cuts and implicitly raise the inflation threshold demonstrates a strong inclination toward easing monetary policy, according to Englander and many others in the market.
In New York trade, U.S. Treasury yields experienced a slight decline, remaining stable in Asia. Two-year yields were recorded at 4.59%, while 10-year yields stood at 4.26%. Following the S&P 500’s achievement of a record closing high overnight, U.S. and European futures saw gains during Asian trade.
Fed Chair Jerome Powell addressed reporters, noting that despite persistent inflation reports indicating price pressures, the overall narrative remains one of gradual inflation decline.
In the foreign exchange markets, the dollar, which had seen recent gains amidst concerns of a more hawkish Fed stance, weakened against most major currencies, causing the yen to rebound from near multi-decade lows to 150.45 per dollar.
The euro reached a one-week high of $1.0939 during Asian trading, while the Australian dollar surged to a one-week high following a surprisingly robust jobs report that dispelled speculation of imminent policy easing.
Although gold experienced a slight decrease from its earlier spike, it remained elevated at $2,200 per ounce, marking a 7% increase for the year. Shafali Sachdev, head of investment services in Asia at BNP Paribas Wealth Management, commented on the positive impact of anticipated rate cuts on gold prices, emphasizing that lower dollar rates could lead to a weaker dollar, thereby boosting gold prices.
Brent crude futures remained stable at $86.34 per barrel.