The Dollar Index, a measure of the greenback against a basket of currencies, climbed to its highest level since mid-March on Monday as traders reassessed their reaction to the Federal Open Market Committee minutes on Thursday.
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There is a strong case for United States Federal Reserve officials to lift interest rates when they meet next month, Craigs Investment Partners Chris Timms said yesterday. Thus, the same basic framework that has kept the Fed at zero-and that has guided our relatively dovish policy views-now suggests the process of normalization should begin.
In its November meeting minutes released last week, the U.S. central bank hinted, in its strongest language yet, that it is prepared to hike rates next month. However, there are several reasons not to be too concerned about the Fed.
World equity markets slipped, with US stocks ending slightly lower in quiet trading after strong gains last week.
Spot gold had fallen 0.3% to $1,074.91 an ounce by 0045 GMT, extending Friday’s 0.4% drop.
“The Fed cannot kick the can down the road any longer”, said Gavin Wendt, founding director and senior resource analyst at MineLife in Sydney. Restrained growth owing to the dollar will persist well into next year and spell continued weakness in the traded-goods-producing sectors, he said.
The United States dollar bought 122.81 Japanese yen, lower than 122.88 yen of the previous session. “And Fischer’s speech is part of that strategy”, he said.
He said some participants were trimming bets on the dollar’s ascent ahead of the Thanksgiving holiday.
USA exports totaled US$188 billion in September, down 5 percent from an all-time high in October past year, according to Commerce Department data.
British finance minister George Osborne is likely renew his austerity drive later on Wednesday, taking a gamble that voters can accept four more years of deep spending cuts to fix the country’s public finances, despite the dimming economic outlook.
He also mentioned the idea of a higher inflation target, though he noted concerns about central-bank credibility and the fact that the Fed and other central banks have struggled to boost inflation even to their current targets.
While considering the currency’s effect on the economy, the Fed lacks full control.
It seemed the central bank thought the costs of cutting further outweighed the benefits.
The U.S. labour market has been steadily improving over the past 18 months. It touched the strongest since April 15.
If the Fed doesn’t raise rates in December, they risk the market’s interpretation of an unfounded “promise” to do so and further distrust of monetary policymakers down the line.
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Economists gave a median 23 percent chance of a hike by end-March, a 55 percent likelihood rates will move in the second quarter and a more certain 80 percent chance Bank Rate has gone up by the end of next year.
