New York Fed chief William Dudley on Tuesday said the market is underestimating the likelihood of a hike, comments he reiterated Thursday.
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On the currency markets, the pound was up 0.16% against the dollar at 1.308 U.S. dollars, while sterling climbed 0.4% against the euro at 1.158 euros.
Based on this outlook, Dudley said that, “we are edging closer toward the point in time when it will be appropriate to raise rates further”, and that a rate hike in September, “is possible”.
An upbeat assessment of the USA economy’s strength from Fed Vice Chairman Stanley Fischer on Sunday was seen raising the prospect of Fed chair Janet Yellen flagging up a rate rise at a meeting with the world’s central bankers on Friday.
MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.7 per cent, after losing 0.3 per cent last week.
“The DXY US dollar index already seemed to be looking ahead for some slightly more upbeat language on the US economy coming out this week as it rallied 0.4 per cent on Friday”, he said.
The comments come amid economic and financial world speculation about how quickly the Fed is likely to raise interest rates as the US economy shows modest growth and strong recent employment increases.
Spot gold had fallen 0.6 percent to Dollars 1,333.40 an ounce by 0404 GMT, after touching a low of USD 1,331.35, a level not seen since Aug 9. Speculation that the central bank could intervene to curb appreciation has mounted as the exchange rate’s 4.1 percent gain this year threatens to stifle a tentative recovery in exports, a key driver of the nation’s economy.
The U.S. currency was already on the front foot on Friday after San Francisco Fed President John Williams said a rate hike in September should be in play. Hong Kong’s Hang Seng shed 0.3 percent to 22,868.47 and Seoul’s Kospi added 0.9 percent to 2,017.94.
“A 1.25 percentage point slowdown in productivity growth is a massive change, one that, if it were to persist, would have wide-ranging consequences for employment, wage growth, and economic policy more broadly”, he said.
The precious metal is sensitive to moves in USA rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar in which it is priced. Australia’s ASX 200 was also flat at 5,523, with the energy and materials sub-indexes down 0.36 and 0.85%, respectively, likely offset by gains in the telco sector.
Some economists believed Fed chair Janet Yellen would use her speech at the symposium on 26 August to flag her own thoughts on monetary policy.
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A recent batch of strong USA employment readings have yielded upbeat views from some Fed policymakers suggesting rates could rise as soon as September, though mixed messages from the bank’s latest meeting have clouded the outlook. Brent crude, used to price worldwide oils, tumbled 93 cents to $49.95 per barrel in London.
