The outlook for a U.S. rate hike boosted the dollar, although the euro rebounded to 1.0729 after hitting a seven-month low at 1.0617 on Wednesday. During a slow cycle, in which the Fed skips meetings between rate increases, the S&P 500 rises on average around 11 percent one year later.
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“People have been pushing the U.S. dollar higher all through this week, especially against the euro and kiwi, pretty much holding their positions going into the minutes”, said Raiko Shareef, currency strategist at Bank of New Zealand in Wellington.
Further, in recent weeks, a number of Fed speakers have said that a rate hike in December was on the table: in congressional testimony on November 4, Yellen called a December rate hike a live possibility if the economy stays on track; and William Dudley, president of the Fed’s NY regional bank, seconded that view in a separate appearance that same day.
Minutes from the Federal Reserve’s October meeting – which took place before last month’s bumper nonfarm payrolls report – revealed that most members of the policy-setting committee expected economic conditions to be right for a December rate hike.
Asian stock markets moved higher on Thursday as jitters from the terrorist attacks in Paris dissipated and investors cheered firmer signs of a Federal Reserve possible interest rate hike next month. The minutes show most officials thought the wording indicated they were leaning toward action but also “leaving policy options open”. They also signaled a gradual pace of rate hikes after liftoff occurs.
“We just have to turn this aircraft carrier around, get out of this zombie-like economy which is being fed on an elixir of low interest rates and get to a process of normalisation”, he said.
Minutes of the European Central Bank’s last policy meeting are also due later Thursday and will likely reinforce expectations of further easing in December.
Interest rate futures imply that there is a 68 per cent chance that the Fed will vote to tighten monetary policy when it meets in mid-December, and the two-year U.S. Treasury yield has climbed as investors begin to anticipate the move.
“Japan’s economy has continued to recover moderately, although exports and production have been affected by the slowdown in emerging economies, ” the BOJ said in its statement on Thursday.
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Lockhart said the central bank would need to be cautious as the debate over how fast to continue raising rates unfolded after an initial hike. Inflation he said was less clear, but he expects prices to rise as the downward pressure from a strengthening dollar and falling oil prices fades. On balance, the data have been encouraging and affirm the economy is growing at a moderate pace.
