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Dollar Swoons as Fed Scales Down Rate Hike Forecasts

The dollar tumbled on Thursday, lifting world shares to their highest level of the year, after the Federal Reserve scaled down its own expectations of the number of U.S. rate hikes likely over the next nine months.

The Fed, via its 'dot plot' system, which charts what rate moves policymakers expect, effectively chopped those forecasts in half, from four hikes to two for the year.

A pedestrian looks at an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo
A pedestrian looks at an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo, Japan, February 26, 2016. REUTERS/Yuya Shino

It was a signal that triggered a slump in the dollar and a surge in risk appetite that rolled from Wall Street to Asia and then into Europe, where London, Frankfurt and Paris opened 0.5 to 0.8 percent higher and bond yields fell.

Commodity markets cheered too. Brent oil jumped over $41 a barrel as a number of large producers also nailed down a date for an output freeze meeting. Industrial metals such s copper saw their biggest rise in two weeks.

But it was the currency markets that really grabbed the attention as the dollar sank to one-month and three-week lows against the euro and yen , and emerging market and oil and commodity-linked currencies surged.

"Risk is thoroughly on," said Societe Generale global head of currency strategy Kit Juckes. "All the chit chat was that they (the Fed) were going to be hawkish, and they weren't."

"The dollar is obviously the loser, but it's good for shares, it's good for oil, and good for debt too, I would say."