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 The decision was widely expected, but a relatively hawkish tone to
the accompanying statement was not. It prompted financial markets to
rethink the growing consensus that the Fed's first interest rate
hike would be late in 2015.
Stock market reaction was more mixed. Asian shares mostly fell,
following a slight decline on Wall Street overnight. European
bourses opened higher on Thursday, helped by encouraging corporate
earnings, but quickly turned negative.
The biggest moves were in currency and bond markets. The dollar rose
sharply against all its major counterparts, and the two-year U.S.
bond yield posted its biggest one-day rise in almost four years.
"Relatively hawkish comments about the labor market caused the
dollar to spike strongly as the market readjusted for the next move
from the Fed, which senior analyst at FXpro in London.
In a statement on Wednesday after a two-day meeting, the Fed
retained its basic guidance that overnight borrowing costs would
remain near zero for a "considerable time".
But it dropped a characterization of the U.S. labor market slack as
"significant" in a show of confidence in the economy's prospects,
which markets perceived as a slightly hawkish turn.
In early European trade the dollar index, a broad measure of the
greenback's trade-weighted value, was up 0.5 percent above 86.4.
The dollar was up a third of a percent against the yen, above 109
yen, and the euro was down half a percent at $1.2575.
The dollar benefited as U.S. Treasury yields surged, with the
benchmark 10-year Treasury note yield climbing to a three-week high
of 2.362 percent. In early European trade on Thursday it was
hovering around 2.33 percent.
The two-year yield, which is more sensitive to interest rate moves,
was above 50 basis points, double the level it was only two weeks
ago. It jumped almost 10 basis points immediately after the Fed's
statement on Wednesday.
European equity markets initially welcomed the Fed's statement as a
sign the U.S. economy is in good shape, rather than taking fright at
the prospect of interest rates perhaps rising sooner than had been
expected.
But at 0930 GMT the EuroFirst 300 index of leading shares was down
0.1 percent at 1317 points. Germany's was down 0.4 percent and
France's CAC40 was down 0.1 percent, shrugging off upbeat corporate
updates from Alcatel Lucent, Technip and Renault.
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Britain's FTSE 100 was down 0.5 percent, and U.S. futures
pointed to Wall Street opening around 0.2 percent lower.
British bank Barclays set aside 500 million pounds ($800 million)
for potential fines resulting from a global foreign exchange
investigation. Its shares were up 1 percent, however, after the bank
reported a 15 percent rise in third- quarter profit.
MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.5
percent, while Japan's Nikkei bucked the trend in Asia and rose 0.7
percent, as investors took heart from the significantly weaker yen.
Gold fell to a three-week low just above $1,200 an ounce, pressured
by the strong dollar. Oil also fell, with U.S. and Brent crude
futures down almost 1 percent to $81.40 and $86.42 a barrel,
respectively.
Brazil surprised markets late on Wednesday by hiking interest rates,
a bold move that signals President Dilma Rousseff may make
market-friendly policy changes after her narrow re-election victory
on Sunday.
The rate hike could give the Brazilian real a further lift. It had
fallen to a nine-year low against the dollar on Monday after
Rousseff defeated market-friendly challenger Aecio Neves, but it
recovered ground as some of the pessimism faded.
(Reporting by Jamie McGeever; Editing by Larry King; To read Reuters
Global Investing Blog click on http://blogs.reuters.com/globalinvesting;
for the MacroScope Blog click on http://blogs.reuters.com/macroscope;
for Hedge Fund Blog Hub click on http://blogs.reuters.com/hedgehub)
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