NEW YORK, Dec (Shanghai: 600875.SS – news) 2 (Reuters) – The dollar hit an 8-1/2 month high on Wednesday as economic data supported a rate hike by the U.S. Federal Reserve in December, while U.S. stocks were little changed as investors awaited comments from Fed Chair Janet Yellen.
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The U.S. dollar increased against most major currencies as Yellen made positive remarks about the country’s economy, bolstering market expectation for an interest-rate hike by year-end.
FXCM Israel research department said in its market review this morning, “The shekel-dollar exchange rate has been correcting down slightly over the past day with traders attempting to balance out their unilateral “gamble” on the expected steps to be taken by the European Central Bank (ECB), on the one hand, and the US Federal Reserve, on the other hand”. Manufacturing activity remained mixed, the Fed added, with exports continuing to fall as a result of the strong US dollar, low commodity prices and weak global demand.
“Atlanta Fed President Dennis Lockhart said there is a compelling” case for an initial hike in interest rates during the Fed’s next meeting.
While the vast majority of economists and stock market watchers now anticipate the Fed will raise rates from about 0% to 0.25% in December, there is a lot of uncertainty about what comes next.
Taking account of those effects, “it appears that the underlying rate of inflation in the United States has been running in the vicinity of 1.5 to 1.75 percent”, she said.
She did nothing to quell widespread speculation that the Fed will raise its benchmark interest rate, which has been near zero for six and a half years, during its meeting on December 15-16.
Data on Wednesday showed USA private employers added 217,000 jobs in November, up from the 196,000 in October.
While she repeated that the decision to raise rates remained data-dependent and that there was further scope for the labour market to improve, Ms Yellen noted that the number of part-time workers seeking a full-time job had “fallen considerably”, while wage growth was now broad-based.
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Most in the market expect the central bank to increase its asset purchase program and lower its deposit rate, the rate at which banks park excess funds with it. In fact, Yellen said In October, nearly 2 million individuals classified as outside the labor force because they had not searched for work in the previous four weeks reported that they wanted and were available for work. “Between today and the next [Fed] meeting, we will receive additional data that bear on the economic outlook”, Ms. Yellen said. And she will have a chance to expand on her thinking with lawmakers Thursday, when she testifies before the Joint Economic Committee. If the job market were strong, many of those people probably would get back into the labor force.
