The dollar slipped below the 121 yen line in the early morning, giving up much of its overnight gain supported by the US central bank suggesting the possibility of a rate hike at its next policy meeting in December in a statement released after its latest meeting.
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Last but not least, Jessop did not see broad, strong momentum for the USA dollar against other major currencies going forward.
The yield on the benchmark 10-year Treasury note surged five basis points to 2.09 per cent. The Bloomberg Dollar Spot Index erased a loss to add 0.3 per cent. The Fed will be watching employment and inflation data closely.
Kevin Giddis, head of fixed income at Raymond James, said, “The Fed is doing everything it can to try to keep a 2015 rate increase on the table”. It’s a decision nearly everyone expected, but it also means the Fed is now running out of time for a rate hike in 2015. It repeated in its statement that “underutilization of labour resources has diminished”.
Rather than saying, as before, that global developments “may restrain (US) economic activity somewhat”, the committee simply said it is “monitoring global economic and financial developments”. Household and business spending is expanding at “solid rates” whereas previously it was only described as “increasing moderately”.
Following a two-day meeting in Washington, Fed policymakers voted to leave rates at 0-0.25% – where they have been for the seven years since the financial crisis.
The Reserve Bank of Australia may be looking at cutting its interest rates to prevent an unwelcome rise in the Aussie dollar.
In addition the FOMC made a particular reference to its December meeting raising the prospect of a first rate rise this year. As he had in September, Lacker favoured a quarter-point rate hike. The long rate hike debate may finally end in December.
Deutsche Bank’s U.S.-listed shares were down 5.3 percent after the German bank announced a massive overhaul of its operations that includes 35,000 job cuts. That hurts American exporters and acts as a brake on inflation. The Fed now expects that inflation will not reach its 2.0% target until 2018.
Yellen is not scheduled to hold a news conference on Wednesday.
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Julian Jessop, chief global economist for Capital Economics, said in a report on Wednesday that it was widely assumed an increase in USA interest rates might lead to lower commodity prices, as higher rates could result in slower economic growth, reduced demand for commodities, and increase the opportunity cost for investors holding commodities.
