In the past few months, the Fed has been swaying back and forth on whether to raise rates this year, keeping investors across the globe on tenterhooks.
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Federal Reserve Chair Janet Yellen painted a rosy picture of the U.S. economy at an economic symposium on Friday and said the case for a rate hike was strengthening, but gave little indication on when the central bank could move.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose to 95.84 early Tuesday, the most since August 12.
Federal Reserve Vice Chairman Stanley Fischer said Tuesday the USA job market is “very close to full employment” and that an interest rate hike – or a series of them – would be made based on economic signs. Today’s price action suggests that investors are still digesting the comments on Friday from Fed Chair Janet Yellen and Vice Chair Stanley Fischer.
HONG KONG-Japanese stocks rallied on a weaker yen but other Asian markets retreated Monday after Federal Reserve chief Janet Yellen hinted at a United States interest rate rise by the end of the year.
Rate futures pointed to the market pricing in more than a 30% chance of a hike in September, up from 18% before Fed Chair Yellen and her Deputy Fischer’s remarks, according to CME Group’s FedWatch tool.
The advance in the US stock markets was led by financials, which stand to gain the most in an environment of higher interest rates. Gold declined to a month’s low at $1,321 an ounce, whereas Brent crude retreated 1.4% to $49.41 a barrel.
The rupee on Monday resumed substantially lower at 67.14 compared to previous close of 67.06 at the interbank foreign exchange (forex) market on fresh bouts of dollar demand.
The dollar extended Friday’s gains and reached a roughly three-week high against the yen of 102.39 yen. The S&P 500 slipped 3.43 points, or 0.2 per cent, to 2,169.04.
Analysts said prices were also depressed by worries over the outcome of a meeting next month between Opec and Russian Federation aimed at addressing a global supply glut. They moved initially in December, but their plans for subsequent rate increases have been derailed by global developments and a spattering of weak US data points. Earlier in the session, the index rose as high as 95.608, its loftiest since August 16. The Tokyo market was an exception and gained on prospects for a strong dollar.
But with the economy barely growing and inflation sliding further away from the Bank of Japan’s 2 percent target, most economists polled by Reuters expect the bank to ease further next month when it conducts a comprehensive review of the effects of its stimulus programme. The U.S. dollar ticked higher on Monday in anticipation and nonfarm payrolls this Friday will be seen as crucial.
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“That should weigh on gold”, Butler said.
