Expect a Rate Hike Later This Month, Signals Fed Chair Janet Yellen

04 March, 2017, 00:34 | Author: Lorena Waters
  • A trader works on the floor of the New York Stock Exchange

At 9:42am ET, the Dow Jones Industrial Average was up 22.32 points, or 0.11%, at 21,025.29, the S&P 500 was up 0.33 point, or 0.014%, at 2,382.25 and the Nasdaq Composite was up 3.94 points, or 0.07%, at 5,865.16.

For now, anyway. Often higher interest rates might be seen as a negative, but indications that the US Federal Reserve Board (Fed) is set to increase interest rates in March only served to drive share prices higher.

The dollar index, which measures the greenback against a basket of other major currencies, climbed as much as 0.7 per cent to its highest levels in seven weeks, having also been helped by data showing robust USA consumer spending.

New York Federal Reserve President William Dudley said in a televised interview that the case for tightening monetary policy has become "a lot more compelling" since the U.S. election. The March meeting takes place March 14-15.

The Bank of Canada on Wednesday held steady on interest rates, citing uncertainties about the domestic economy.

Mr. Trump did not comment on the most pressing tax issue facing Congress, a proposed border adjustment tax to boost exports over imports.The Canadian dollar would be among the biggest losers if the border tax were implemented, analysts say.

The greenback traded at 113.16 yenJPY=, up 0.35 percent from late US levels, while the euro dropped 0.1 percent against the dollar to $1.0565EUR=.

"If the Fed goes ahead with a faster pace of rate hikes and shrinks its balance sheet, it will weigh on stock prices", said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi UFJ.

Stock markets across Asia went into reverse on Friday after Wall Street pulled back from a record high. One could imagine a situation in which the deficit shots up in the face of Mr Trump's fiscal plans, requiring a surge in Treasury issuance, at a time when the Fed was trying to unload bonds into the market.

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"This is the firmest way that Yellen could have communicated that a March hike is likely".

Dr Yellen's strongly-worded message barely budged markets, which had reset earlier this week to price in a March rate hike after several of her colleagues in recent days also put a rise at the next rate-setting meeting firmly in view.

The U.S. dollar bought 114.55 Japanese yen, higher than 113.69 yen of the previous session. US 2-year yields hit their highest since August 2009 of 1.32 percent while the 3-year yield hit a almost 11-week high of 1.598 percent.

A report from the Commerce Department showed USA consumer spending rose less than expected in January, while inflation pushed higher. As a result the U.S. dollar has also risen. February's reading was at its lowest in five months.

John Williams, president of the San Francisco Fed, said the economy risked running "too hot" because monetary policy is still running "pedal to the metal", in the text of a speech delivered in California.

"The word from Fillon is that he soldiers on regardless, and that leaves Macron as the candidate most likely to win in terms of betting probabilities", said Societe Generale strategist Ciaran O'Hagan, in Paris.

The pan-European STOXX 600 index rose 1 per cent, with Germany's DAX and France's CAC 40 outperforming peers to climb 1.3 per cent and 1.4 per cent, respectively, helped by strong company earnings reports.

The Australian dollar climbed to 0.7676 USA dollar from 0.7674 US dollar.

The euro rebounded from recent weakness to rise 0.93 percent against the dollar after a poll showed French far-right candidate Marine Le Pen's chances in the country's presidential election dimming. As well as a strong dollar, which is typically negative for all dollar-denominated commodities, higher interest rates raise the opportunity cost of holding gold as a non-yielding asset.

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