They also caused investors to reset their expectations of a December rate hike above 60 percent, a sign that markets are finally taking the Fed’s language seriously after a period in which USA central bankers were frustrated by the gap between their own outlook and market bets about their likely course of action. That compares to 33 percent a month ago, assuming the effective funds rate average is 0.375 percent after liftoff.
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“It is worthwhile to remember that a 25 basis points increase in the interest rate level to 0.50% will only have a marginal impact to the economy”, the brokerage added. Instead, Yellen called it a “live possibility” and reiterated what the Fed said in its October statement: it could be appropriate to interest rates next month.
The dollar index, which tracks the greenback against six major peers, was up 0.15% at 98.135, after having gained 0.8% on Wednesday.
Most Southeast Asian stock markets declined, giving up recent gains as investors cut holdings after top US Federal Reserve officials kept the door open to a December interest rate hike.
The Shanghai Composite index which was trading higher on 4 November following President Xi Jinping’s economy-friendly comments continued to gain on Thursday and closed 1.83% higher at 3522.82.
“The dollar is being bought gradually, with markets pricing in the rate increase as data come out and yields rise”. Sterling fell sharply, retreating from a 11-week high against the euro, and 0.7 percent against the dollar after Bank of England dampened expectations of an interest rate hike in the near term. Another 11% of respondents think the Fed will hold off until the second half of 2016 before pushing rates higher, and 13% don’t see rates going up before 2017. USA data on Wednesday supported Yellen’s guarded optimism, with private employers hiring steadily in October and a jump in new orders buoying activity in the services sector.
“Markets are still digesting what Yellen said yesterday and whether it means multiple rate hikes ahead”, Peregrine and Black trader, Markus Huber, said.
A robust U.S.jobs report on Friday could trigger another sell-off in gold, already facing weak technicals and investor outflows.
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Scotiabank economist Derek Holt agrees that incremental data will matter to the Fed, particularly the job numbers. Low inflation and a strong dollar have also weighed on sentiment. (Crude oil prices were falling on Wednesday morning after a brief rally early in the week.) “As those matters stabilize, inflation will move back to our 2% target”.
