European stocks soar as investors bet on Fed hold-over
The dollar has weakened against major currencies and European stocks have hit record highs as traders bet on the US central bank examining signs of rising inflation to keep interest rates close to zero .
The dollar index, which measures the greenback against a basket of trading partner currencies, fell 0.2% on Tuesday to trade around its lowest level of 2021 so far. Over the past year, the index has fallen by more than 10%.
The British pound rose 0.3% against the dollar to $ 1.4199, around its highest level since February. The euro also gained 0.3 percent to $ 1.2246, its best level since January.
“The belief that inflation in the United States is transient has become an extremely consensual position,” said John Roe, head of multi-asset funds at Legal & General Investment Management.
In stock markets on Tuesday, the European Stoxx 600 index rose 0.3%, heading for a new all-time high. London’s FTSE 100 was stable as the heavy exporters index was weighed down by the gains of the pound against the dollar. The Swiss market index also rose 0.6% to a new record.
Headline consumer price inflation in the United States hit 4.2% in the 12 months ending in April, the biggest increase in 13 years and more than double the Reserve’s 2% target federal government over time.
The Fed, however, viewed the jump as a temporary surge linked to imbalances in supply and demand, as industries closed by the coronavirus last year have reopened. And while central banks have used higher interest rates to control inflation since the early 1980s, Fed Chairman Jay Powell has taken the world’s most powerful rate maker in a new direction. by explicitly tolerating transient price increases instead of increasing borrowing costs and risking a post-pandemic economic slowdown.
“The market pushed back the Fed’s rate hike expectations into the future,” said Solita Marcelli, chief investment officer for the Americas at UBS Wealth Management. “This confirms our view on the weakness of the US dollar.”
Economists polled by Bloomberg expect personal consumption spending in the United States, the Fed’s preferred measure of inflation that excludes more volatile components such as food and energy, to rise by 2.9% in April, over one year.
But the five years The futures rate of inflation, a market measure of price increases over time in the United States, fell to 2.24 percent after climbing to 2.37 percent earlier this month .
The belief that inflation, which over time erodes fixed interest yields paid to bondholders, will be temporary has supported US Treasuries prices in recent months. The benchmark 10-year Treasury yield fell 0.02 percentage points to 1.591% on Tuesday, after approaching 1.8% when inflation jitters were stronger in the first quarter of this year.
China’s CSI 300 closed 3.2% higher as the outlook for US interest rates eased pressure on emerging market borrowers.
Brent, the international oil benchmark, slipped 0.4% to $ 68.23 per barrel.