Stocks rally and dollar drop on hopes Fed rates have peaked

HONG KONG, China — Stocks and oil prices rose while the dollar weakened Thursday as a much-needed burst of confidence flows across world markets after the Federal Reserve hinted it has come to the end of its long-running interest rate hiking cycle.

Asian traders picked up the baton from their Wall Street counterparts, who welcomed what was seen as a dovish stance by the central bank and its governor, while data suggesting its tightening measures were taking hold provided extra support.

The bank said it would pause rates -- now at a two-decade high -- for a second straight meeting as officials wanted to assess the impact of more than a year of hikes, while boss Jerome Powell warned there was still some time before inflation was brought to heel.

However, while he left the door open to more increases down the line, he said that "tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation".

Analysts said Powell's use of "financial" was significant, as it acknowledged that it was not just credit that was tightening, with surging Treasury yields being seen as financial markets helping the Fed do its heavy lifting.

"Some might take this as a sign that the bond market will continue to help them with this tightening cycle, which could support the argument that a peak in rates is in place," said OANDA's Edward Moya. 

The pause comes after the Fed began hiking rates early last year to combat surging inflation in the wake of the Ukraine invasion, tight supplies and supply chains and a surge in post-Covid demand for goods.

Since peaking at more than seven percent in June 2022, inflation as measured by the Fed's favoured yardstick has slowed by more than half -- although it remains stuck firmly above three percent.

Observers said investors were left sceptical that the bank would lift borrowing costs again, even after Powell said decision-makers kept the possibility alive.

The news out of Washington sent 10-year Treasury yields down by 20 basis points, helped by the Treasury's decision to slow the pace of increases in its long-term bond sales, meaning it will issue less debt.

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