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US Dollar, Stocks Lower as Fed Keeps Timing Taper Close to Fund

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NEW YORK (Reuters) – U.S. stocks and the dollar fell on tepid trading on Wednesday following the Federal Reserve offered no idea when it might start reducing its purchases of government bonds, even as it said an economic recovery was on track.

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FILE PHOTO: The New York Stock Exchange (NYSE) is seen in the financial district of New York, US, on January 13, 2021. REUTERS/Shannon Stapleton/File Photo

After the end of its final policy meeting on Wednesday, the Federal Reserve said that the economy is improving despite a rise in coronavirus cases, and that accelerating inflation is still the result of “transitional factors.”

At a press conference, Federal Reserve Chairman Jerome Powell said it was not yet time to consider raising interest rates, and that while the Fed began discussing plans to decrease its bond purchases, the exact timing will depend on incoming data.

“It was a relief that there wasn’t much talk of tapering off,” said Ryan Detrick, chief market analyst at LPL Financial in North Carolina. “Our view is that the Fed will most likely announce when the taper will begin at Jackson Hole later in August.”

Chart: Year-to-date global forex rates – here

The Dow Jones Industrial Average fell 0.36%, the S&P 500 was flat, while the technology-focused Nasdaq Composite rebounded 0.7% following hitting its lowest level in more than two months on Tuesday.

Any sign that the Fed may tighten policy sooner than expected could rattle markets, as its slack policy has flooded the market with liquidity and pushed Wall Street to record levels. Also, some investors are concerned that the rapidly spreading viral delta variant may hamper economic growth, and hope the Fed will stand on a pleasing footing for now.

The lack of a clear timetable, despite expectations, led to the dollar’s decline. The greenback saw a month-lengthy rally as investors bet that a powerful economy will lead to the Fed’s move to gradually ease inflationary pressures.

The dollar index fell 0.24%, and dollar weakness supported the euro by 0.28% to $1.185.

Chart: Global Asset Performance – Here

Treasury yields initially rose following the Fed meeting, but later fell back. The produce on the 10-year Treasury fell 0.3 basis points to 1.231%, and the produce on the 10-year Treasury inflation-protected bond rose to -0.917%, prior falling back to -1.171%.

Aside from the Fed meeting, investors’ appetite for risk also got a boost from signs that the Chinese stock market may finally be flat, following it was hit this week by fears of widening regulatory action. [.SS]

After two sessions of declines, the European STOXX 600 Index rose 0.66% and the MSCI gauge of stocks worldwide rose 0.38%.

Leading Chinese stocks closed 0.2% higher overnight, and the benchmark Hong Kong index jumped 1.5%, but remained near a nine-month low.

The Chinese yuan also fell from its lowest level in three months. Tuesday saw its biggest daily drop since October. The offshore Chinese yuan strengthened against the dollar at 6.4894 per dollar.

The cryptocurrency Bitcoin also bounced back overhead $40K, jumping 2.4% to $40,428.38.

Chart: Asian stock markets – here

Strong risk appetite did not affect the demand for safe-haven gold, which settled near $1800. [GOL/]

Spot gold rose 0.2 percent to $1,802.81 an ounce. US gold futures rose 0.06% to $1,800.80 an ounce.

Oil prices received a boost following data showed that US crude inventories fell more sharply than analysts had expected, overshadowing fears that the spread of the epidemic could affect demand. [O/R]

US crude rose 0.8 percent to $72.25 a barrel, and Brent rose 0.17 percent to $74.61.

Graphic: Chinese stocks in the US take a hit –

Additional reporting by Koh Gui Ching in New York, Tom Arnold in London and Elon Jun in Hong Kong; Additional reporting by Sujata Rao; Editing by David Gregorio and Alistair Bell


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