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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

US dollar slides and oil leaps after dovish Fed - as it happened

A mosaic depicting pound sterling symbols on the front hall of the Bank of England.
A mosaic depicting pound sterling symbols on the front hall of the Bank of England. Photograph: Luke Macgregor/Reuters

Closing summary: US dollar moves European markets

After a volatile day, the London stock market has closed higher tonight thanks to a surge in natural resource companies.

Silver produced Fresnillo, mining giant Antofagasta and commodity trading group Glencore all surged almost 10% today. They were following a pick-up in the prices of metals, thanks to the weaker dollar which remains on track for its worst day against the British pound since 2009.

So the FTSE finished 25 points higher, at 6,201 points.

Chris Beauchamp of IG says miners saved the day:

Were it not for the mining sector, the FTSE 100 would be firmly in the red, but with commodity prices looking perkier thanks to a weaker dollar, the index has been able to hold close to its recent peak around 6200.

European markets have finisher in the red, with the French CAC losing 0.5% and German DAX down almost 1%. That’s partly due to alarm over the strength of the euro against the US dollar tonight.

The oil price is also pushing higher, with US crude hitting a three-month high tonight.

Traders will have plenty to chew on as they travel home, particularly about central banker.

Last night’s Fed announcements set the scene for a day in which two central banks cut interest rates (Norway and Indonesia), while two more held rates steady but issued gloomy statements (Switzerland and the UK).

Can central banks really keep bailing us out? Or as Justin Trudeau point out, isn’t it really time for fiscal policy to do more?.....

On that note, thanks for reading and goodnight.

Amid choppy trading in New York, the Dow Jones index has quietly hit its highest level of the year.

The Dow is currently up 93 points, or 0.5%, at 17,418, as traders ponder the implications of the Fed’s new gloomy view of the global economy and the financial markets.

The Dow Jones index over the last quarter
The Dow Jones index over the last quarter Photograph: Thomson Reuters

The pound is on track for its biggest one-day jump against the US dollar since October 2009, according to Reuters data.

Sterling is currently up 1.7%, or 2.4 cents, at $1.4494 , thanks to the Fed’s sudden dovishness last night.

Ever felt like you’re languishing in the wrong job, toiling away at the coalface as your glittering talents go to waste?

Me neither. But according to the UK stats office, one in three workers are either over or under-qualified for their roles.

As Katie Allen explains, it’s not a great sign:

In another blow to hopes that the UK can lift its productivity growth out of the doldrums, data from the Office for National Statistics shows the proportion of workers “matched” to their job has dropped in recent years.

At 68.7% in the three months to December 2015, the percentage of those in employment with a level of education close to the average of their job was down compared with 69.9% two years earlier.

Here’s the full story:

Trudeau: Monetary policy is near its limits

Canadian Prime Minister Justin Trudeau speaks during an interview with Bloomberg television today.

Canada’s prime minister Justin Trudeau, has flashed his Keynesian credentials today.

Speaking to Bloomberg, the newly-ish elected leader said that Canada can’t simply rely on central bankers for growth.

Fiscal measures must do their bit too, Trudeau insisted, saying:

“We should be using fiscal levers a little more and not just expecting monetary policy to have to fix the challenge we’re in.

“I think we’re approaching the limit of the impact of monetary policy alone.”

Canada’s government is due to present a budget next week, and analysts expect they will lay out plans for a larger deficit.

During the interview, Trudeau also diplomatically suggested he could work with Republican front-runner (and global threat-in-waiting) Donald Trump.

The fall in the dollar is helping to push the oil and gold prices higher.

Brent crude has gained 1.6% so far today, to $41 per barrel. As usual, there’s chatter about a possible agreement to freeze output; producers are due to meet in April.

Gold is also enjoying a little romp, up 0.3% to $1,266 per ounce, having surged by 3% yesterday when the Fed decision was announced.

The Economist Intelligence Unit is sticking to its forecast that UK interest rates will remain at record lows for another four years.

Art Cashin, a legendary figure on Wall Street, reckons the Federal Reserve is still too hawkish about monetary policy when it predicts two rate rises this year.

Cashin, UBS’s director of floor operations at the New York stock exchange, told CNBC that Janet Yellen will be lucky to manage one hike before Christmas.

(That’s a St Patrick’s Day hat)

Wall Street in early trading, today
Wall Street in early trading, today Photograph: Thomson Reuters

US dollar 'pukes' as traders ditch the greenback

The US dollar continues to be thumped today, and has shed more than 1% against other currencies.

The greenback continues to suffer from last night’s Federal Reserve meeting, when the Fed said it will probably only raise interest rates twice this year, not four times.

It has tumbled by almost two cents against the British pound, sending sterling up to $1.4452. And the euro is almost one cent higher, at $1.1316.

Christopher Vecchio, Currency Analyst at DailyFX, says traders are racing to get out of the US dollar.

The US Dollar may still be the greenback, but it’s green in the face now that the Fed has all but stamped out the “divergence trade” that’s carried the world’s reserve currency for the past two years.

“Instead, no matter where you turn, US Dollar charts are ‘puking’ - most everyone was on one side of the trade, and now everyone is rushing for the exits at the same time.”

‘Puking’, in City jargon, occurs when an asset plunges rapidly, as seen in this chart of the dollar against other currencies today

South Africa has bucked the trend and raised interest rates, by a quarter-point to 7%.

Worries about the global economy are likely to weigh the New York stock market when trading begins, in 30 minutes time.

Reuters explains:

Wall Street was set for a lower open onThursday, a day after the Federal Reserve’s lowered expectations of two interest rate hikes in 2016 pushed the S&P 500 to its highest close this year.

The Fed, which left rates unchanged, pointed to moderateU.S. economic growth and strong job gains but cautioned about risks from an uncertain global economy.

While markets across assets cheered the move, the central bank’s dovish tone raised some concern about the prospects of the weakness in the global economy impacting the U.S. economy.

“There’s this little bit of rethinking and so, we’re looking at a softer opening as some questions arise to the prospects of future growth impacting earnings,” said Peter Cardillo, chief market economist at First Standard Financial in New York.

And here’s IG’s latest opening calls:

Martin Beck, senior economic advisor to the EY ITEM Club, believes UK interest rates will remain at record lows for at least another year.

He cites weak demand in the eurozone, and weakness in the UK economy too:

“The prospect of a hike in the Bank Rate remains one for the dim and distant future. The euro-zone - the UK’s single largest source of imports - fell into deflation in February. Moreover, a backdrop of further falls in factory gate prices, subdued wage growth, and February seeing cuts in gas bills, also points to UK inflation rising very modestly this year.

In addition, the Chancellor’s Budget plans imply a slightly more severe fiscal squeeze over the next five years than previously planned, which should further caution the MPC against a tighter policy.”

Here’s our news story about today’s Bank of England announcement:

Back to the Bank of England..... and today’s minutes show that the MPC is concerned about the global economy.

They say:

Over the medium term, growth in the advanced economies should continue to be supported by the boost to real incomes from low commodity prices, and to some degree by fiscal and monetary policy.

But emerging market economies are likely to grow more slowly than in recent years and the risks to the MPC’s central projection of only modest global growth lie to the downside.

Bank of Japan 'intervenes' to weaken the yen

There’s drama in the financial markets -- the Bank of Japan appears to have intervened to weaken the yen.

The BoJ would have been unhappy to see the yen appreciate sharply against the US dollar today, after America’s Federal Reserve was so dovish last night.

Financial traders are continuing to protect themselves against sterling plunging around June’s referendum, the Bank of England says.

Options prices continued to indicate that the price of protection against the risk of a sterling depreciation against the dollar compared with the price of protection against an appreciation was higher than in the second half of 2015.

That negative skew had increased over the period since the Committee’s previous meeting.

However, there is “little evidence” that other UK asset prices have been hurt by Brexit fears, the minutes say.

BoE: EU uncertainty could hit economic demand

The Bank of England has warned that rising Brexit uncertainty could hit economic demand in the UK.

In the minutes of today’s monetary policy meeting, it says that the issue has already weakened the pound.

There appears to be increased uncertainty surrounding the forthcoming referendum on UK membership of the European Union. That uncertainty is likely to have been a significant driver of the decline in sterling [which has fallen by 9% since last November].

It may also delay some spending decisions and depress growth of aggregate demand in the near term.

On the upside, though, the Bank believes that the underlying growth of private domestic demand remains solid.

A tighter labour market and rising productivity are expected to support real incomes and consumption. Consumer confidence and most surveys of business investment are above historical averages.

Updated

Bank of England leaves rates on hold again

Breaking! Britain has entered its eighth year of record low interest rates.

The Bank of England’s monetary policy committee has voted unanimously to leave borrowing costs at their current record low of 0.5%, extending a run dating back to March 2009.

The MPC also voted 9-0 to leave the Bank’s quantitative easing programme unchanged, at £375bn.

Details and reaction to follow....

Donald Trump.

With Donald Trump tightening his grip on the Republican nomination, the Economist Intelligence Unit has warned that President Trump would be a serious threat to the global economy.

As serious, indeed, as a resurgence of jihadi terrorism destabilising the global economy.

In a new report, the EIU argues that if Trump wins November’s presidential election, he would trigger a trade war and incite fresh turmoil in the Middle East

Brexit, Grexit, a Chinese hard-landing and fresh conflict between Russia and Eastern Europe are also significant threats, they say:

The EIU's top risks to the global economy

Updated

New data has confirmed that the eurozone has fallen back into negative inflation.

Eurostat reports that prices dropped by 0.2% across the single currency bloc in February, in line with its earlier flash estimate, and justifying the stimulus measures announced by the European Central Bank last week

And there are now 11 eurozone countries in deflation, up from six in January, as cheap oil pulls down energy costs.

Howard Archer IHS Global Insight says:

Renewed members of the deflation club in February included Germany, France and Italy. Furthermore, Spanish deflation widened markedly to 1.0% from 0.4% in January....

He believes price pressures will remain weak for some months.

The Eurozone may well edge in and out of deflation in the near term, before consumer prices gradually edge up due to reduced year-on-year drops in energy prices helped by base effects, the weak euro and ongoing Eurozone growth.

Please don’t get excited if you receive a message from the Bank of England governor, offering you millions of dollars.

It’s a fraud, despite the ‘ID Card’ offered as proof that it really, really is Mark Carney (it really isn’t)

The Bank of England are on the case:

Updated

Joshua Mahony, Market Analyst at IG, says City traders are nervous ahead of the Bank of England’s big announcement in an hour’s time.

While rates will surely remain at 0.5%, the minutes of this month’s meeting could add to the pessimistic mood, he says.

With the BoE due to release its latest monetary policy outlook, fundamental risk remains at the forefront of trader’s minds, despite little likeliness of any policy shift.

Given yet another OBR growth downgrade yesterday, the chances of a rate hike are slim to none, as reflected by the fact that the rates market currently sees a cut as more likely than the much vaunted hike.

Updated

Indonesia just followed Norway by cutting interest rates. In its case, from 7% to 6.75%.

Central bank gloom hits the markets

The early optimism in the stock markets is fizzling out, following this morning’s double-dose of central bank gloom.

The major European indices are all now in the red, after the pessimistic statements from the Swiss and Norwegian central banks earlier today.

They have reignited concerns over weak global growth, and worries that central bankers may be ill-equipped to handle it.

Shares in French and German exporters are being hit, following this morning’s rise in the value of the euro against the US dollar (making their goods less competitive).

European stock markets
Shares in retreat across Europe Photograph: Thomson Reuters

Erica Blomgre of Nordic corporate bank SEB says the Norwegian central bank was more pessimistic than expected today, as it lowered interest rates and predicted further cuts ahead.

“The new rate path is more dovish than what market was pricing ahead of the meeting....

The main reason for the lower path is weaker private and foreign demand, lower rates abroad and lower wages and prices.”

Updated

Norway cuts interest rates and hints it could go negative

Newsflash: Norway’s central bank has just cut interest rates from 0.75% to 0.5%, and issued its own warning about the economic outlook.

Governor Øystein Olsen says:

Growth prospects for the Norwegian economy have weakened somewhat and inflation is expected to moderate further out. The Board has therefore decided to lower the key policy rate.

And with wage growth weak, and unemployment expected to rise, Olsen says that rates could be cut again:

“The current outlook for the Norwegian economy suggests that the key policy rate may be reduced further in the course of the year.”

The Nordes Bank even hints that it could even cut interest rates below zero!

Should the Norwegian economy be exposed to new major shocks, the Executive Board will not exclude the possibility that the key policy rate may turn negative.

Swiss central bank leaves rates on hold

More central bank action, this time in Switzerland.

The Swiss National Bank has just left interest rates unchanged at minus 0.75%, and warned that the country faces deeper negative inflation too.

The SNB also struck a downbeat tone, saying:

The global economic outlook has deteriorated slightly in recent months and the situation on international financial markets remains volatile.

The Fed’s sudden dovishness could yet backfire if they are caught out by US inflation pressures, says Jan Von Gerich of Nordea Markets.

Mike van Dulken and Augustin Eden at Accendo Markets reckon that the Federal Reserve might not raise interest rates at all this year.

They suspect that the looming US election could help keep borrowing costs on hold through 2016 (even though policymakers expect two rate hikes).

The Fed chair cited global risks to the US economy and inflation uncertainty, rather than the US economy itself which is performing well, as reasons for a) standing pat in March and b) just maybe standing pat for the rest of the year.

We still think (b) is the most likely outcome given what’s on the menu in the US in the latter half of 2016 (i.e. a presidential election the build-up to which is proving even more of a circus than usual), not to mention that the FOMC needs to keep market sentiment in check.

The US dollar is still sliding

The dollar is continuing to weaken this morning, driving the euro up to a five-week high of $1.1279.

The pound has also risen against the US dollar, to $1.429. Brexit fears are taking a back seat today.

And India’s rupee has also strengthened:

Mining companies are leading the rally in London this morning, with Anglo American surging by almost 10%.

Top risers on the FTSE 100 this morning
Top risers on the FTSE 100 this morning Photograph: Thomson Reuters

They are benefitting from the slump in the US dollar, after the Fed said it only expects two interest rate hikes this year, not four.

A weaker US currency pushes up the cost of commodities (as they are priced in dollars), and should also prevent capital from pouring out of emerging markets into US assets.

Markets rally after Federal Reserve turns dovish

U.S. Federal Reserve Chair Janet Yellen holds a press conference following the two-day Federal Open Market Committee (FOMC) policy meeting in Washington last night.
U.S. Federal Reserve Chair Janet Yellen at last night’s press conference. Photograph: Kevin Lamarque/Reuters

Shares are rallying in Europe, and across Asia, after the US Federal Reserve was surprisingly dovish at last night’s policy meeting.

America’s central bank tore up its previous forecasts for four interest rate rises this year, and now expects to only hike American borrowing costs twice in 2016.

That’s a recognition that inflationary pressures are rather weaker than policymakers previously realised.

The Fed struck a somewhat downbeat tone, given it had hiked borrowing costs back in December, cautioning that “global economic and financial developments continue to pose risks”.

And chair Janet Yellen was at pains to insists that monetary wasn’t on a pre-set course, and that “caution” was needed.

This dovish approach to rate hikes was cheered on Wall Street, and Asian markets followed suit.

China’s Shanghai Composite index has closed 1.2% higher, and Australia gained almost 1%.

And in London, the FTSE 100 has gained 33 points in early trading to 6210 points.

Investors are calculating that the era of ultra-easy monetary policy could be with us for longer than expected, with Japan and the eurozone now operating negative interest rates and British borrowing costs likely to stay low for many years.

Updated

Introduction: Bank of England interest rate decision today

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Britain’s era of record low interest rates will continue into its eighth year today, as the Bank of England meets to set monetary policy.

In a busy period for central bankers, it’s the BoE’s turn to consider how to tackle the weak growth and low inflation that is bedevilling the global economy.

At noon today the monetary policy committee will announce their decisions, and almost certainly leave interest rates at 0.5%.

The minutes of the meeting will be more interesting, showing how worried policymakers are the global economy, the recent turbulence in the financial markets, and even the upcoming EU referendum.

And there’s always the possibility that one, or more, of the nine MPC members will vote to change monetary policy today.

It’s unlikely, though, as Jasper Lawler of CMC Market explains:

Expectations are for another 0-0-9 vote to keep interest rates unchanged.

It’s hard to imagine accompanying BOE meeting minutes turning more hawkish before the June Brexit vote given Governor Mark Carney’s warnings about the risks of uncertainty.

We’ll be tracking all the main events through the day....

Updated

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