Fed's cautious optimism raises hopes for rate cuts
Dollar edges down, sterling gains
Oil rises as data shows larger than expected crude draw
(Updates prices at 2:43 p.m ET/ 1843 GMT)
A global equities gauge rose to record levels on Wednesday while U.S. Treasury yields edged down with comments from Federal Reserve Chair Jerome Powell fuelling hopes for interest rate cuts as investors awaited key U.S. inflation data.
Powell told lawmakers in Congress that while he was not yet ready to declare inflation beaten, the U.S. remained
on a path back to stable prices
and continued low unemployment and that the Fed was "very focused on staying on that path."
The U.S. dollar edged lower while the euro rose slightly and sterling rallied as comments from the Bank of England's chief economist dampened expectations for an August rate cut.
On Tuesday, Powell had told Congress that since the U.S. economy was no longer running too hot the central bank has to weigh risks and would be able to cut rates once inflation makes more progress.
"Powell's reiterating the message that if inflation continues to cool the Fed should be ready to move rates. It does also feel like he's added a bit more emphasis on the labor market as well," said Mona Mahajan senior investment strategist at Edward Jones in New York. "It looks like September and December are back on the table for rate cuts."
Added to Powell's comments, Mahajan said the slight dip in bond yields appeared to be supporting equities too.
Investors are also waiting for June's Consumer Price Index report (CPI), due out on Thursday, and the Producer Price Index (PPI) report, which comes on Friday, and expect the data to add to optimism that the Fed will be able to cut rates this year.
Traders are currently pricing in a 46% probability that the Fed will have cut rates by two notches by the end of December's meeting and a 70% probability for the first cut in September, according to CME Group's FedWatch tool.
On
Wall Street , at 02:43 p.m. the Dow Jones Industrial Average .DJI rose 221.87 points, or 0.56%, to 39,513.84, the S&P 500 .SPX gained 39.89 points, or 0.72%, to 5,616.87 and the Nasdaq Composite .IXIC gained 181.01 points, or 0.98%, to 18,610.30.
MSCI's gauge of stocks across the globe .MIWD00000PUS rose 5.22 points, or 0.64%, to 823.00 while Europe's STOXX 600 .STOXX index rose 0.91%.
In Treasuries, the yield on benchmark U.S. 10-year notes US10YT=RR fell 1.6 basis points to 4.284%, from 4.3% late on Tuesday while the 30-year bond US30YT=RR yield fell 2 basis points to 4.4749%.
The 2-year note US2YT=RR yield, which typically moves in step with interest rate expectations, rose 0.3 basis points to 4.6305%, from 4.628% late on Tuesday.
In
currencies , the dollar edged lower with the prospect for rate cuts still in focus as Powell wrapped up his testimony.
The dollar index =USD , which measures the greenback against a basket of currencies including the yen and the euro, fell 0.05% at 105.07, with the euro EUR= up 0.07% at $1.082.
Against the Japanese yen JPY= , the dollar strengthened 0.28% to 161.76. Sterling GBP= strengthened 0.44% at $1.2839.
In commodities, oil prices settled higher after data showed that a jump in U.S. refining activity last week prompted a bigger draw than expected from gasoline and crude inventories.
U.S. crude CLc1 settled up 0.85%, or 69 cents at $82.10 a barrel and Brent LCOc1 settled at $85.08 per barrel, up 0.5%, or 42 cents on the day.
Gold prices
rose on raised expectations for U.S. interest rate cuts, while investors waited for Thursday's inflation data with a view to bolstering those expectations.
Spot gold XAU= added 0.33% to $2,371.38 an ounce. U.S. gold futures GCc1 gained 0.72% to $2,377.00 an ounce.
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