Federal Reserve boss Jerome Powell's dovish turn on Capitol Hill reinforced expectations the central bank will cut interest rates this month

London (AFP) - The Dow powered above 27,000 points for the first time while the dollar slumped on Thursday as investors welcomed the head of the Federal Reserve effectively flagging a cut in US interest rates later this month.

In a first day of closely watched congressional testimony on Wednesday, Jerome Powell said the case for lower borrowing costs “had strengthened” owing to headwinds caused by global trade uncertainty.

“It’s safe to say that investors were pleased with Jerome Powell’s first day of testimony on Wednesday, with equity markets jumping on his dovish assessment,” said Oanda analyst Craig Erlam.

US equities, which had surged on Wednesday with the Nasdaq ending at a record high, pushed even higher.

The Dow shot above 27,000 points to set a new intraday record, while the S&P 500 briefly broke the 3,000 point level.

“Dow just hit 27,000 for first time EVER!” tweeted US President Donald Trump, who has been outspoken about his desire for the Fed to cut rates to support the economy.

“The Fed Chairman doesn’t typically provide strong and direct messages on policy direction, which makes predicting future rate movements all the more difficult. But Wednesday’s message was clear, the data is softening – particularly on the inflation side – and downside risks are significant,” Erlam said.

Most Asian markets had followed Wall Street’s lead, with Hong Kong jumping 0.8 percent and Tokyo ending the day 0.5 percent higher.

But European markets turned lower.

“With these dovish tones from the Fed driving the dollar lower, we are seeing European stocks stutter in the wake of a strengthening euro and pound,” said Joshua Mahony, senior market analyst at online trading firm IG.

- Cut expectations ‘locked in’ -

FXTM analyst, Hussein Sayed, said the markets had already clearly priced in a quarter-point reduction in US interest rates.

But now, “bets for a (half-point) rate cut have increased significantly after Powell’s testimony,” he said.

Nevertheless, the need for such a big cut also had its negative side, the expert continued.

“This may suggest that the US economic expansion is at a greater risk than what recent data are showing and may also be seen as political influence from the White House,” Sayed warned.

Investors were also keeping an eye on Powell’s second day of testimony on Capitol Hill.

Higher-than-expected June inflation data didn’t seem to dent expectations that the Fed would go ahead with a rate cut.

Consumer prices rose 0.1 percent month-on-month, while 12-month inflation excluding volatile energy and oil prices, added a tenth of a percentage point to 2.1 percent.

“One could tell just how locked in on the interest rate issue the market is with the release of the Consumer Price Index for June,” said market analyst Patrick O’Hare at Briefing.com.

“The key takeaway from the report was that the (year-on-year) uptick in core CPI should seemingly diminish the prospect of a 50-basis points rate cut at the July meeting.”

- Key figures around 1530 GMT -

London - FTSE: DOWN 0.3 percent at 7,509.82 points (close)

Paris - CAC 40: DOWN 0.3 percent at 5,551.95

Frankfurt - DAX 30: DOWN 0.3 percent at 12,332.12

EURO STOXX 50: DOWN 0.1 at 3,497.47

New York - Dow: UP 0.7 percent at 27,044.38

Tokyo - Nikkei 225: UP 0.5 percent at 21,643.53 (close)

Hong Kong - Hang Seng: UP 0.8 percent at 28,431.80 (close)

Shanghai - Composite: UP 0.1 percent at 2917.76 (close)

Euro/dollar: UP at $1.1261 from $1.1251 at 2100 GMT

Pound/dollar: UP at $1.2552 from $1.2504

Dollar/yen: DOWN at 108.28 yen from 108.46 yen

West Texas Intermediate: UP 28 cents at $60.71 per barrel

Brent North Sea crude: UNCHANGED at $67.01 per barrel

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