(Reuters) – Asian shares enjoyed their best session in 18 months on Thursday as investors priced in a later start and a slower pace for future U.S rate rises, slashing sovereign bond yields from Japan to Australia.
The shift in rate expectations hit the dollar hard at first, though the damage lessened as the session wore on. The formerly friendless euro had found itself as high as $1.10625 EUR= in wild trade on Wednesday, only to fade to $1.0767 in Asia.
MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS climbed 1.6 percent, its largest daily gain since September 2013. Australia’s main index .AXJO jumped 1.9 percent led by banks as markets wagered on lower domestic rates.
The only laggard was the Nikkei .N225 which slipped 0.2 percent in reaction to a firmer yen.
Short-term U.S. yields boasted their biggest drop in six years after the Federal Reserve trimmed forecasts for inflation and growth, and said unemployment could fall further than first thought without risking a spike in inflation.
The median projection for the Fed funds rate at the end of 2015 was cut to 0.625 percent, down half a point from December.
Fed Chair Janet Yellen also sounded uncomfortable with the strength of the dollar, saying it would be a “notable drag” on exports and a downward force on inflation.