(Reuters) – Stocks on Wall Street rallied and oil prices jumped as much as 6% on Wednesday after the Federal Reserve indicated it preferred a more gradual path to normalizing U.S. interest rates even as it moved toward its first rate hike in almost a decade.
The dollar tumbled against other major currencies and the U.S. 10-year Treasury yield dipped below 2% for the first time since March 2 after the Fed appeared to argue against a June rate hike, as many in the market had expected.
Gold prices surged more than 2 percent, having dropped 3 percent since the start of the year on rate hike expectations.
“What’s really significant is that they downgraded their assessment of the economy, and that means rates will stay lower for longer. And when they do start to rise, they will go at a much more muted pace,” said Mary Ann Hurley, a fixed income trader at D.A. Davidson in Seattle.
Stocks on Wall Street rebounded sharply, rising more than 1%, while yields on the benchmark 10-year Treasury note fell 150 basis points on the day as markets bet on a September rate hike after the Fed’s statement.
The Dow Jones industrial average closed up 227.11 points, or 1.27%, at 18,076.19. The S&P 500 rose 25.14 points, or 1.21%, to 2,099.42 and the Nasdaq Composite added 45.39 points, or 0.92%, to 4,982.83.
MSCI’s all-country world index of equity performance in 46 countries rose 2.01%, while its emerging markets index rose 1.84%.
Ten-year notes rose 1-8/32 in price to yield 1.9182%, after yielding as low as 1.906%. U.S. 30-year bonds added 2-7/32 in price to yield 2.5089%.
The dollar dropped to two week-troughs against the yen and was last at 120.07 yen, down 1.05%.
The euro hit one-week highs against the dollar and was last trading at $1.0833, up 2.25%, its biggest single-day gain since July 2010.
The dollar’s fall powered oil higher. In post-settlement trading Brent climbed more than 6%.
Brent settled $2.40 higher at $55.91 a barrel. U.S. crude settled up $1.20 at $44.66 after falling more than $1 earlier on a rise in inventory data.
Expectations of the first Fed rate hike since June 2006, coupled with the start of the European Central Bank’s asset-buying program last week, had driven the euro down against the dollar and sparked a rally in European stocks in recent weeks.
Investors snapped up 3.3 billion euros of 10-year German Bunds, or almost twice the demand seen last month, as concern grows that the ECB’s bond buying is creating a shortage of top-rated debt.
The bonds were auctioned to yield 0.25%, half the rate offered by the bond and down from 0.37% at the previous sale.