Two close Yellen allies – William Dudley, president of the Federal Reserve Bank of NY, and Stanley Fischer, the Fed’s vice chairman – suggested in the past week that a strengthening economy would soon warrant a resumption of the rate hikes the Fed began in December. The KBW Nasdaq bank index rose 0.74 per cent.
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Rates have been at historic lows to help boost the economy but on Friday, Federal Reserve Chairwoman Janet Yellen said she sees a stronger case for raising them.
Making its first hike in almost a decade, the US Federal Reserve raised rates last December, but has avoided further increases so far this year owing to the continuing global economic slowdown and volatility in major financial markets.
Foreign inflows, however, were seen slowing in the run-up to the annual meeting of USA policymakers at Jackson Hole amid an appreciation in the dollar against most global currencies. She said solid growth in household spending had led to an expansion of the United States economy.
Other data in investors’ crosshairs next week include personal consumption on Monday, consumer confidence on Tuesday, and vehicle sales and factory activity on Thursday.
Traders remained cautious, however. The odds of a hike in September rose to 33 percent following the comments, from 21 percent on Thursday, according to CME Group’s FedWatch tool.
Dovish signals from Ms Yellen, meaning traders will start to rule out any chance of a near-term USA rate hike, could weaken the United States dollar and provide further support for the Euro.
“I think that the Fed wants to get the market to start pricing in a hike for this year, which they weren’t doing earlier, and now I’m seeing the probability of a hike by December has gone up slightly over a coin toss”.
“It’s clear from the Fed’s actions this year that it is aware of global risks, the impact of its own actions on those risks and any potential blow back to the United States economy and of the impact of a rising USA dollar in doing some of its work for it”.
The comments from Yellen and Fischer dragged Wall Street lower at the close.
But they proved a boon for the U.S. currency, with the dollar index, which tracks the greenback against six global peers, jumping 0.8 per cent on Friday. It held steady at 95.518 on Monday. The yen gained against the dollar after data showed the nation’s core consumer prices last month fell 0.5 percent from a year ago.
Economists forecast the economy added a solid 180,000 net new jobs last month, down from a strong 255,000 gain in July, and the unemployment rate will tick down to 4.8 percent.
On the upside for the pound, we are seeing a real interest in Euro buy orders from corporates in the €1.18-€1.19 price area. Meanwhile, the Nasdaq Composite took an opposite turn by closing higher by 6.71 points or 0.1 percent to end trading at 5,218.92 points.
In commodities, the rally in the dollar and concerns about growing output after exports from Iraq in August exceeded July levels drove crude lower.
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US crude futures CLc1 fell 1.1 percent to $47.10. Japan’s TOPIX sank 1.3 percent, as the yen traded at ￥100.45 to the U.S. dollar.
