LONDON (Reuters) - Stocks, bonds and commodities were all on a roll on Thursday, as market bulls scented a softening in the Federal Reserve's confidence on inflation that promised to keep U.S. interest rates low for longer.
MSCI's 47-country All World share index was cheering its latest record high after Wall Street had set its own fresh peak and Asian stocks had jumped to their highest in almost a decade.
European bourses took longer to warm up after a lung cancer drug test failure sent pharmaceutical giant AstraZeneca sprawling and disappointing Deutsche Bank results weighed on Germany. But the region eventually managed a modest 0.2 percent rise.
The latest rush for risk came after the Fed left U.S. rates unmoved as expected but tweaked its wording on inflation, which saw the dollar subside to a 2-1/2 year low against the euro and a 13-month trough against a broader set of top currencies.
The market seized on the fact that the central bank noted that both overall and core inflation had declined and removed the qualifier "recently," perhaps suggesting concerns the slowdown might not be temporary.
The Fed also said it expected to start winding down its massive holdings of bonds "relatively soon", cementing expectations of a September start.
While that would be an effective tightening in financial conditions, it might also lessen the need for actual hikes in rates, which matter more for currency valuations.
"The dollar's biggest problem is it can't expect help from the Fed for a long time," said Alan Ruskin, global head of forex at Deutsche Bank.
"In the short term we are still in a risk-favourable loop, whereby subdued goods and services inflation supports a well-behaved bond market and asset inflation. It's just another day in paradise."
A Reuters poll showed most primary dealers still see the Fed's next rate rise in December. But rate futures are pricing in less than a 50 percent chance of a hike by then, compared to a little more than 50 percent before the Fed's meeting.
DOLLAR BREAKS LOWER
Bonds rallied in reaction, with yields on 10-year U.S. Treasuries down at 2.28 percent having fallen 5 basis points overnight. Asia and Europe followed. Germany's short-dated yields hitting a six-week low.
The euro, which had been bumping up against a 23-month top for most of the week, finally broke through to reach as far as $1.1777, its highest since early 2015.
The euro was last buying $1.1722 with the next major target the 200-week average at $1.1807 - a measure it has not traded above since mid-2014.
The dollar was fast approaching the 200-week barrier on its Canadian counterpart, and had breached that technically important level on the Australian dollar. The Aussie duly climbed 0.6 percent to reach $0.8050.
The dollar even fell back against the yen to 111.03, though the damage was somewhat limited by expectations the Bank of Japan would keep its super-easy policies in place longer than most other global central banks. It was last at 111.21 yen.
The prospect of U.S. policy staying stimulative saw Wall Street's fear gauge touch a record low as stocks notched historic closing highs. The Dow had ended Wednesday up 0.45 percent, while the S&P 500 added 0.03 percent and the Nasdaq 0.16 percent.
Futures markets pointed to further gains when trading resumes in New York later.
The declining greenback boosted commodities priced in dollars. Gold hit a six-week high and was last trading at $1,261.80, while copper reached $6,400 a tonne, territory not trodden since May 2015.
Oil prices paused near eight-week highs after a surprisingly sharp drop in U.S. inventories encouraged speculation a global crude glut would recede.
A bout of profit-taking saw Brent crude futures ease 7 cents to $50.90 a barrel, while U.S. crude dipped 5 cents to $48.70.
(Additional reporting by Wayne Cole in Sydney; Editing by Mark Trevelyan)