Dollar crunched by cautious Fed, bonds and commodities cheer

While the unemployment rate is forecast to hold steady at its eleven-year low of 4.8% wage data is expected to prove rather more discouraging, with earnings growth thought to have slowed further in the three months to January.

“It is a wait-and-see mood that is mostly prevailing in the market ahead of the Fed’s decision”, said Shin Kadota, senior currency strategist at Barclays in Tokyo.

Aided by stronger oil, Wall Street was cautiously firmer around mid-session in NY, with the Dow edging up around 0.3 percent.

Financial spreadbetters predicted a muted start to European stocks after Thursday’s strong gains, with Britain’s FTSE and Germany’s DAX expected to open 0.1 percent lower and France’s CAC 40 seen starting the day flat. “The common currency was boosted as exit polls showed the Netherlands” centre-right Prime Minister Mark Rutte roundly saw off a challenge by anti-Islam, anti-EU Geert Wilders in an election on Wednesday, alleviating concerns towards Holland opting to leave the EU.

Gold, copper and oil all rallied as the dollar dropped.

A widely anticipated USA interest rate hike combined with a dovish outlook for the future path of rates lifted emerging stocks to 20-month highs on Thursday but also prompted a number of developing central banks to tighten monetary policy. The Dow Jones Industrial Average futures pointed to a 0.18% rise, S&P 500 futures showed a 0.23% gain, while the Nasdaq 100 futures indicated a 0.21% increase.

Rather, the Fed said its inflation target was “symmetric”, indicating that after a decade of below-target inflation it could tolerate a quicker pace of price rises.

Overnight, Wall Street was subdued following strong gains after the Fed’s rate decision.

Investors are awaiting the outcome of a central bank meeting in Turkey where a large external deficit makes it vulnerable to higher US borrowing costs. That was painful news for bond bears who had built up huge short positions in Treasuries in anticipation of a hawkish Fed.

The weaker dollar after the Fed raised rates as expected also helped to make the greenback-denominated crude less expensive for holders of other currencies.

In response, the United States currency weakened after the release with USD/JPY dipping below 113.00 and the dollar index edged back to the 10.00 area.

Oil prices were lifted by a surprise drawdown in United States crude inventories and data from the International Energy Agency suggesting Opec cuts should create a crude deficit in the first half of 2017. Prices hovered just below the Thursday session high, when the metal reached $1,233.13, its highest since March 6.It rallied 2.3 percent on Wednesday and Thursday following the Fed’s statement.”Everything’s quieted down today”. Gold had consolidated around the $1,200 / ounce level, but has seen a sudden surge after the telegraphed interest rate hike. Brent crude rose to $52.63 a barrel and WTI oil reached $49.59 a barrel.