The euro rose against the dollar, and European shares were little changed on Wednesday as markets pored over a nuanced statement from the Federal Reserve explaining its decision to keep U.S. interest rates unchanged. Government debt yields fell on the statement, and on news that three bombs had exploded outside a police station in Athens, which pushed investors towards safe havens. The price of oil, which has also risen this week on geopolitical concerns, held close to 13-year peaks. Futures markets suggested that Wall Street, where shares closed barely changed on Tuesday, would open flat ahead of the Institute for Supply Management's survey of non-manufacturing industry at 1400 GMT. In an eagerly awaited statement on Tuesday, the Fed moved closer to a rate hike, dropping its recent pledge to be patient about such a move, but still said it would move at a "measured" pace. It left its key rate at its 46-year low of one percent. Analysts concluded that cheap money, while on the way out, would remain a feature of the U.S. economy for months to come.
"The 'measured' phrase and the fact that the Fed did not upgrade its economic outlook were important," said Peter Fontaine, foreign exchange strategist at KBC in Brussels. "The market is reading into this that rate hikes will be slow and small, 25 basis points." The euro hit a four-week high against the dollar, with the greenback also weighed down by nervousness ahead of Friday's April non-farm payrolls report. At 1200 GMT, it stood at $1.2130. The dollar also eased to 108.80 yen . "The dollar has lost cyclical support on the back of the statement from the Federal Reserve. The market has been too aggressive in pricing in 75 basis points in hikes by the end of this year," said Hans-Guenter Redeker, chief foreign exchange strategist at BNP Paribas. European shares initially dipped in reaction to the Fed statement, but recouped their losses. The FTSE Eurotop 300 index <.FTEU3> was up 0.12 percent and the more narrowly based DJ Euro STOXX 50 index <.STOXX50E> was 0.24 percent higher.
FED HAS OPENED THE DOOR
"The Fed has opened the door to a rate hike which we expect will come in August," said Anais Faraj, a global equities strategist at Nomura. "However the Fed will continue to watch the data and will want to see about a financial quarter of jobs growth before making a move." Royal Bank of Scotland fell more than five percent after it agreed to buy Charter One Financial Inc. of the United States for $10.5 billion in cash. Allianz added 3.5 percent after Europe's top insurer by sales ended the first quarter of 2004 with a net profit of 650 million euros.
The unspectacular move in European share markets matched that on Wall Street overnight, where the Dow Jones industrial average ended just 0.03 percent higher. The Tokyo market was closed for local holidays. European government debt prices rose, with the yield on the two-year Schatz down 4.4 basis points at 2.365 percent and that on its U.S. Treasury equivalent off 3.6 bps at 2.2863 percent. "After the Fed statement, some people even started looking for a rate hike in June," said one trader. "But people now want to see the jobs data. If the numbers are weaker than expected, then people will start moving rate hike expectations to August." Oil prices slipped slightly from 13-year peaks reached after Saturday's guerrilla attacks on a Saudi petrochemicals plant. Brent crude for June delivery was five cents lower at $35.88 a barrel as the market looked forward to weekly U.S. energy inventory data at 1430 GMT.///