ET:Global markets and bonds rally, dollar dips as Lawrence Summers steps aside
LONDON: The US dollar slid while bonds and shares rallied on Monday after the withdrawal of Lawrence Summers from the race to head the Federal Reserve suggested a more gradual approach to tightening monetary policy.
Further whetting risk appetite was a growing expectation of a diplomatic solution to the Syrian crisis after a Russian-brokered deal averted US strikes for now. That helped propel world shares to just short of a five-year high.
European bourses were quick to catch on after a strong day in Asia, with London's FTSE, Frankfurt's Dax and Paris's CAC 40 opening 0.8 - 1 per cent higher to lift the pan-regional FTSEurofirst 300 0.75 per cent.
Summers' surprise decision came just before the central bank meets on Tuesday and Wednesday to decide when and by how much to scale back its asset purchases from the current pace of $85 billion a month.
Investors wagered that US monetary policy would stay easier for longer should the other leading candidate for Fed chair, Janet Yellen, get the job.
Markets had perceived Summers as less wedded to aggressive policies such as quantitative easing and more likely to scale it back more quickly than the more dovish Yellen, who is currently second in command at the Fed.
"Clearly the dollar doesn't like the idea it could be Yellen at the helm because of the interpretation that QE (stimulus) could be in place for longer," said Jane Foley, senior currency strategist at Rabobank.
"The weakness of data more recently, the retail sales on Friday for example, has also bought home that we are still a little way from the US having a resilient recovery ... so I think Summers's withdrawal has touched a bit of a raw nerve."
It was even possible a first rate rise could be pushed out into 2016, rather than 2015 as currently planned, added Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ. Going by Yellen's past speeches, he said she would most probably prioritise reducing the jobless rate.
"Yellen looks like the clear front-runner, and seems to be the public's popular choice," he said.
