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By Wayne Cole
SYDNEY (Reuters) - The dollar nursed bitter losses in Asia on Thursday while sovereign bonds savoured their biggest rally in nine months after the Federal Reserve hiked interest rates, as expected, but signalled no pick-up in the pace of tightening.
The euro got an added bonus when early returns showed the anti-EU party of Geert Wilders won fewer seats than expected in Dutch elections, soothing fears that public opinion was swinging inexorably toward a break-up of the union.
"The Fed makes the world safe for risk until June," said CitiFX strategist Steven Englander. "Buy emerging market FX, equities, commodities."
Somebody seemed to be listening as gold, copper and oil all rallied as the dollar dropped. MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.9 percent to its highest since mid-2015.
South Korea's market <.KS11> climbed 1.0 percent but Japan's Nikkei <.N225> went the other way, easing 0.4 percent, as a jump in the yen pressured exporters.
The Dow <.DJI> had ended Wednesday with gains of 0.54 percent, while the S&P 500 <.SPX> added 0.84 percent and the Nasdaq <.IXIC> 0.74 percent.
The Fed lifted its funds rate by 25 basis points to a range of 0.75 percent to 1.00 percent, but said further increases would only be "gradual."
Crucially, officials stuck to their outlook for two more hikes this year and three more in 2018, when many had expected an accelerated spate of moves.
Rather, the Fed said its inflation target was "symmetric," indicating that after a decade of below-target inflation it could tolerate a quicker pace of price rises.
That was painful news for bond bears who had built up huge short positions in Treasuries in anticipation of a hawkish Fed.
Yields on two-year notes
The drop pulled the rug out from the dollar, which sank to a three-week low of 100.510 against a basket of currencies <.DXY>.
The euro was taking in the view at $1.0737
Richard Franulovich, a forex analyst at Westpac, noted history showed a strong positive correlation between the dollar and yields one week after a Fed meeting and the direction and magnitude of the change in the dots from meeting to meeting.
"The absence of any overt hawkish guidance from the Fed and their dots should leave the dollar trading on the back foot over the next month," he said.
The yen and the Swiss franc tended to move the most in the first week, he added, but the impact tended to be longer lasting on the Australian and Canadian dollars.
Indeed, the Aussie currency rose a rousing 2 percent on Wednesday to stand at $0.7710
A protracted bout of weakness for the U.S. dollar would be seen as positive for commodities priced in the currency.
U.S. crude futures
(Editing by Richard Borsuk)
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)