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Shares rally, dollar falls ahead of Fed meeting

  • Shares had rallied in the previous session after robust Chinese and US economic data and continued their gains on Wednesday.
  • Investors will be looking for details about how the changed approach will affect monetary policy.
16 Sep 2020

LONDON: Shares rose, the dollar fell and risk appetite was broadly up on Wednesday, as investors waited for the US Federal Reserve meeting and new economic projections which will assess the outlook for the world's largest economy.

Shares had rallied in the previous session after robust Chinese and US economic data and continued their gains on Wednesday, after a shaky start to the European session.

The MSCI world equity index, which tracks shares in 49 countries, was up 0.2% at 1122 GMT, its fourth consecutive day of gains, while MSCI's main European Index was up 0.1%.

The pan-European Stoxx 600 rose around 0.4%, pushed up by gains in retail stocks, while other European indexes were more mixed.

US stock futures rose, as investors hoped that the Fed would pledge to keep interest rates low for a prolonged period.

The Fed will give a statement at 1800 GMT, after its policy meeting, which will be the first since it announced that it would pursue average inflation targeting.

Investors will be looking for details about how the changed approach will affect monetary policy, but Commerzbank's Head of FX and commodity research, Ulrich Leuchtmann, said anyone expecting a big change in strategy would be disappointed.

"I think we will see only a relatively mild change in the actual communications," he said of Wednesday's meeting.

"We will probably see over time how this new strategy translates into actual monetary policy actions ... frankly I think that both sides who expect the big changes in the strategy, or nothing, will be somehow disappointed."

Although the economic projections are expected to be somewhat improved from the last round of forecasts in June, Fed Chair Jerome Powell is expected to stick to his message that the road to recovery will be long and uncertain.

"While acknowledging the more rapid improvement in the economic backdrop, we expect the message to remain one of caution," wrote RBC Capital Markets analysts in a note to clients.

"There is no upside for the committee to be positive at this juncture."

Investors will also be watching for US retail sales data for August, due at 1230 GMT and expected to show a robust increase.

The yen rose overnight and extended gains to hit nearly seven-week high of 104.995 to the US dollar around 1108 GMT , as investors sought safer assets.

The dollar fell against a basket of currencies, and was at 92.879 at 1132 GMT, down 0.3% on the day.

The euro was up 0.2% at $1.18635.

Highly rated euro zone government bond yields fell by 1 to 3 basis points, with the benchmark German 10-year Bund yield at -0.495%.

Oil prices rose for a second day in a row, with US crude oil hitting one-week highs, up 2.1% at $39.09 a barrel at 1134 GMT.

Gold prices rose, up 0.4% at $1962.66 an ounce at 1134 GMT .

London's FTSE 100 lagged other European indexes, falling 0.3%, but the struggling pound was propped up by a weaker dollar.

UK inflation dropped to its lowest rate in almost five years last month, led by a large reduction in prices for eating out under a government subsidy scheme.

As the British government pushes ahead with legislation that would breach the Brexit Withdrawal Agreement signed in January, the European Commission said that chances of reaching a trade deal are fading every day.

Elsewhere, the World Trade Organization ruled that the United States breached global trade rules with the multibillion-dollar tariffs it imposed during its trade war with China.

The decision had limited market impact as it is only the start of a legal process that could take years.

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