Asian shares headed towards a two-year peak during Thursday’s early trade after Federal Reserve Chair Janet Yellen made comments before a House committee on Wednesday that were interpreted by analysts to mean that the Fed won’t be raising interest rates as much as originally planned. Specifically, Yellen commented that based on current estimates, the federal funds rate :would not have to rise all that much further” to reach a neutral level and that at this point the Fed will continue to tighten policy gradually. Analysts are now holding a 55 percent expectation for a rate hike in December while the expectation for a September rate hike which was at one point highly anticipated is now under 10 percent.
Yellen told the committee that the Fed is carefully monitoring the country’s inflation. "Temporary factors appear to be at work. It's premature to reach the judgment that we're not on the path to 2 percent inflation over the next couple of years. As we indicate in our statement, it's something we're watching very closely, considering risks around the inflation outlook," she said.
In response to Yellen’s statement the MSCI’s broadest index outside of Japan gained 0.45 percent to hit highs not seen since mid-2015. Japan’s Nikkei 225 index gained 0.14 percent as of 10:20 a.m. HK/SIN. Hong Kong’s Hang Seng index was up 0.9 percent.
The Asian stock rally followed a day of gains on Wall Street where the Nasdaq gained 1.10 percent, the Dow gained 0.57 percent and the S&P 500 gained 0.73 percent.
Currencies Also Move
Currency markets were also impacted by Yellen’s Congressional address. The Canadian dollar saw its biggest gain percentage-wise since March 2016. The loonie was trading at $1.2748, near one-year highs. The dollar struggled for direction, losing ground slightly against the yen to trade at 113.15 but gaining slightly against the euro to trade at $1.1434.