Asian shares rebound after Fed renews dovish credentials

October 8
8:47 PM 2014

Asian shares bounced back and the dollar fell on Thursday after minutes of the U.S. Federal Reserve's latest policy meeting showed policymakers have some concerns about downside risks to the global economy and the dollar's strength.

Japan's Nikkei share average .N225 rose 0.8 percent while MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS gained 0.5 percent.

The minutes of the Fed's Sept. 16-17 meeting showed officials are struggling with how to come to grips with the dual threats of a stronger dollar and a global slowdown as they seek an eventual exit from low interest rates.

"The overall tone of the minutes was that the Fed will manage its policy so as not to damage a fragile economy, paying attention to various downside risks," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

"There's absolutely no indication of an early rate hike," he added.

U.S. interest rate futures <0#FF:> <0#ED:> reacted vividly to the minutes, with June 2015 euro dollar interest rate futures EDM5 hitting a contract high as traders scaled back expectations that the Fed will raise rates by June.

The rate sensitive two-year U.S. Treasury note yield US2YT=RR hit a seven-week low of 0.444 percent. The 30-year bond yield dropped to a 17-month low of 3.039 percent US30YT=RR.

U.S. stocks soared on Wednesday, with major indexes posting their biggest one-day jumps of 2014, reversing falls earlier in the session to their lowest levels since August.

In the currency market, where the dollar had gained sharply over the past three months on the perception that higher U.S. rates down the road will attract more funds, investors also quickly rushed out of dollar-buying positions.

The dollar's index against a basket of six major currencies .DXY =USD slipped to 85.198, its lowest level in nearly two weeks, having fallen 1.8 percent from its four-year high of 86.746 hit on Friday. It last stood at 85.218.

As the dollar wilted, the euro recovered to two-week high of $1.2749 EUR=, despite a run of weak German data earlier this week, such as industrial output having biggest fall since January 2009. The euro last stood at $1.2724.

Against the yen, the U.S. currency traded at 108.16 yen, not far from three-week low of 107.75 yen JPY= touched on Wednesday.

The British pound stood at $1.6160 GBP=D4, off an 11-month low of $1.5943 hit on Monday, ahead of the Bank of England's policy announcement later in the day. The bank is expected to keep rates steady near record lows.

Elsewhere, U.S. crude oil prices hit a 1 1/2-year low of $86.83 per barrel CLc1 while Brent oil, European benchmark, hit a two-year low of $91.00 LCOc1.

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