Europe Stock Markets Surge on Fed Interest Rate Decision

The European stock markets have surged after the Federal Reserve increased interest rates for the first time since 2006.

The main share indexes in France, the UK and Germany’s were all up by between 1% and 3% in morning trade.

The US central bank increased the range for its benchmark interest rate to between 0.25% and 0.5%, from the previous range of 0%-0.25%.

The Fed said the rise was part of a “gradual” process to get rates back to normal after years of being near zero.

“Considerable improvement” in the jobs market spurred the Fed into action.

London’s FTSE 100 rose 1.4% to 6,146.68, while Frankfurt’s Dax jumped more than 3% and the Cac 40 in Paris was 2.5% higher.

Photo Reuters

The European stock markets were following the lead given by markets in the US and Asia.

On Wall Street, the Dow Jones closed up 224.18 points, or 1.3%, at 17,749.09, while in Japan, the benchmark Nikkei 225 closed up 1.6% at 19,353.56.

After the Fed’s decision, the dollar rose against larger major currencies. Higher rates make the US a more attractive market for deposits, meaning demand for the dollar is likely to rise.

However, sterling recovered ground lost against the dollar and was 0.3% higher against the euro to €1.3783 after positive retail sales numbers for November.

At one point £1 bought almost $1.50.

British government-issued bonds, or gilts, rose in price following the Fed decision, meaning lower yields, or income.

Benchmark ten-year gilt yields fell 0.056 percentage points to 1.89%. While the specter of higher rates is often bad for existing debt prices, analysts said investors were pleased future Fed rate rises would be “gradual” in nature.