Dollar dazzles after US rate cut as stocks falter

Dollar dazzles after US rate cut as stocks falter

US dollar notes
US dollar notes are seen in this picture illustration. (Photo: REUTERS/Dado Ruvic/Illustration/File Photo)

LONDON: The dollar pushed higher on Thursday (Aug 1) after the US Federal Reserve cut rates for the first time in a decade but left investors doubtful about the amount of easing still in the pipeline.

Fed chair Jerome Powell managed to deliver a "hawkish cut", said Robert Carnell, Asia-Pacific chief economist at ING.

"There's more coming, but not much, so don't hold your breath," he said.

The move to ease the cost of borrowing had been well telegraphed and was meant to inoculate against global risks washing onto American shores.

Powell said the US central bank decided on a 25-basis-point cut in the rate to "insure against downside risks from weak global growth and trade policy uncertainty".

He told reporters he remained confident in the American economy and saw no sectors ready to go "bust".

Some in the markets, as well as US President Donald Trump, had thought the Fed might go for a bigger cut and signal further easing down the road, but Powell appeared to keep his powder dry.

'LESS DOVISH'

Two Fed members voted against the rate cut.

"Investors quickly came to the conclusion that, with an 8-2 vote and a reluctance to commit to further cuts, the Fed was less dovish than they had believed," said analysts at Moneycorp.

"They marked down equity prices and took the US dollar higher."

The Fed decision sent the US dollar rallying to its highest level in more than two years against the euro and the pound.

US equity markets enjoyed a rebound following the previous day's rout, with the buoyant mood also helping eurozone equity markets show modest gains by the close.

London, however, ended a touch lower.

'BORDERLINE USELESS'

There was also central bank action in Britain, where the Bank of England left its key interest rate unchanged, warned of Brexit risks and downgraded its growth forecasts for this year and next.

But some analysts said deep uncertainty about the terms on which Britain eventually leaves the EU undermined any attempt at solid forecasting.

"With the UK being three months from potentially exiting the EU without a deal, the BoE's hands were tied and their forecasts borderline useless," said Craig Erlam, senior market analyst at Oanda.

Oil fell as the stronger dollar made the commodity more expensive for customers in countries outside the United States.

Meanwhile, the latest round of US-China trade talks wrapped up in Shanghai, with negotiators on both sides saying talks had been "efficient and constructive" but gave no signs of an imminent resolution to the impasse.

Investors are now turning their attention to key US economic data, including Friday's employment statistics.

Key figures around 1540 GMT:

London - FTSE 100: FLAT at 7,584.87 points (close)

Frankfurt - DAX 30: UP 0.5 per cent at 12,253.15 (close)

Paris - CAC 40: UP 0.7 per cent at 5,557.41 (close)

EURO STOXX 50: UP 0.7 per cent at 3,490.03

Tokyo - Nikkei 225: UP 0.1 per cent at 21,540.99 (close)

Hong Kong - Hang Seng: DOWN 0.8 per cent at to 27,565.70 (close)

Shanghai - Composite: DOWN 0.8 per cent at 2,908.77 (close)

Pound/dollar: DOWN at US$1.2148 from US$1.2152 at 2100 GMT

Euro/dollar: DOWN at US$1.1060 from US$1.1155

Dollar/yen: DOWN at 108.22 yen from 108.61

Brent North Sea crude: DOWN US$1.38 at US$63.67 per barrel

West Texas Intermediate: DOWN US$1.67 at US$56.91 per barrel

Source: AFP/de

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