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

London (AFP) - Stock markets were mostly higher Thursday and the dollar lost ground against other currencies after the head of the Federal Reserve was seen as effectively flagging a cut in interest rates later this month.

In the first day of closely watched congressional testimony, 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.

In Europe, London’s blue-chip FTSE index and the CAC 40 in Paris were steady to slightly higher, but the DAX 30 in Frankfurt slipped fractionally on profit-taking.

“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.

On Wednesday, US equities surged, with the Nasdaq ending at a record high and the greenback going into retreat.

The generally upward trend in stocks continued in Asia, with Hong Kong jumping 0.8 percent, Shanghai adding 0.1 percent and Tokyo ending the day 0.5 percent higher.

FXTM analyst, Hussein Sayed, said the markets had 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.

- Oil extends rally -

Traders said investors were now looking forward to Powell’s second day on Capitol Hill, as well as the release of inflation data, with observers saying a weak reading could revive hopes for a big July reduction.

The dollar continued to struggle, with the pound, euro and yen all building on Wednesday’s gains, while high-yielding, riskier currencies were also well up.

Oil prices extended the previous day’s surge that came on the back of data showing a bigger-than-expected plunge in US oil inventories as well as a brewing storm in the Gulf of Mexico that could hit production.

British accusations that Iranian boats tried to “impede the passage” of a British tanker in the Strait of Hormuz reinforced geopolitical concerns.

- Key figures around 1030 GMT -

London - FTSE: UNCHANGED at 7,531.95 points

Paris - CAC 40: UP 0.1 percent at 5,571.54

Frankfurt - DAX 30: DOWN 0.2 percent at 12,344.11

EURO STOXX 50: UNCHANGED at 3,501.62

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)

New York - Dow: UP 0.3 percent at 26,860.20 (close)

Euro/dollar: UP at $1.1289 from $1.1251 at 2100 GMT

Pound/dollar: UP at $1.2542 from $1.2504

Dollar/yen: DOWN at 108.15 yen from 108.46 yen

West Texas Intermediate: UP 35 cents at $60.78 per barrel

Brent North Sea crude: UP 41 cents at $67.42 per barrel