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Fed's dovish stance fuels rally in global markets


Commodities in international market trade largely higher supported by weakness in US dollar post FOMC decision. The US dollar index trades weaker near 95.25 levels after a 0.5% decline yesterday.

Fed kept interest rate unchanged at 2.25-2.5% in line with market expectations.

FOMC statement said that in light of global economic and financial developments and muted inflation pressures, Fed will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes. This compares with Fed's prior stance of gradual rate hikes.

Fed also indicated that it is prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments. This compares with Fed's prior stance of bond reduction plan being on auto-pilot mode.

In last few days there has been increasing speculation that Fed members are considering ending the balance sheet reduction plan earlier than previously expected. There was no announcement by Fed towards ending the balancesheet reduction however its stance to be flexible was seen as dovish.

Overall, Fed has turned patient on rate hikes and flexible on balancesheet reduction plan and this is negative for US dollar. Market expectations are increasing that Fed may avoid rate hike and may soon end its bond reduction plan.

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