Bulls on the charge after Fed signals smaller hikes

The bulls were enjoying the good life on Thursday after the world's most influential central banker, Jerome Powell, signalled this year's frantic pace of U.S. interest rate hikes could be about to slow.

It was a textbook "risk on" pattern, with both Europe's STOXX 600 SXXP and MSCI's main world stocks index EURONEXT:IACWI hitting their highest since August and the previously unstoppable dollar DXY huddled at a three-month low.

Rallying bond markets sent borrowing costs lower almost everywhere too and though Wall Street looked set for a flat start later , higher oil and metals prices suggested even commodities markets now see hope for the spluttering world economy.

"It absolutely makes sense," said Unigestion senior portfolio manager Olivier Marciot, saying it was a case of "it's not so bad any more, so it's good."

"We have the confirmation that we are not having central banks being ever more hawkish and the confirmation that inflation is starting to slow."

There has now been a more than 17% recovery in European and world stocks and a 7.5% fall in the dollar DXY since the Fed first started to hint at a shift in its view in mid October.

Fed Chair Powell said on Wednesday the U.S. central bank could scale back the pace of interest rates hikes from the recent 75 basis points "as soon as December", though he still cautioned the fight against inflation was far from over.

"It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down," Powell said in comments that had lifted Wall Street's S&P 500 3% SPX.

Allied with fresh signs that China is looking to relax COVID restriction where it can, Asian stocks jumped 1.35% overnight. (.MIAP00000PUS)

They posted their biggest monthly gain since 1998 in November as hopes for a Fed pivot towards slower rate hikes gathered steam after four consecutive 75-bp increases. But the index was still down about 17.5% on the year.

European markets, meanwhile, largely brushed off German data showing ongoing weak demand in its powerhouse manufacturing sector, helped instead by signs of fewer material shortages perhaps.

The euro was up 0.35% at $1.0445, having traded as high as $1.0463 earlier.

Britain's pound, which has raced back to form over the last couple of months, was up over 1% at $1.2187 GBPUSD, while a surge from the yen meant the dollar index DXY - which measures the currency against six major peers - dipped a further 0.5%.

"Obviously the speech (by Powell) was less hawkish than feared," said Rodrigo Catril, senior FX strategist at National Australia Bank. "The yen is leading the charge, and that makes sense when you look at the big, big move in long-term U.S. rates."