Dudley sees Fed rate hikes; inflation weakness 'fading'

What the Fed’s hawkishness means for the markets

The focus today for Dollars traders shifts to Chair Yellen's speech where ING FX Strategy Research notes its title contains the word "uncertainty" which is the equivalent of "Kryptonite" for currencies.

The benchmark S&P/ASX 200 index slipped 6.70 points or 0.12 percent to 5,664.30 while the broader All Ordinaries index closed marginally lower at 5,725.50. It had been as high as 93.29 on Tuesday, the highest since August 31.

Australian markets moved lower, with the information technology and telecommunication services sub-indexes leading losses. Apple gained 1.7%, halting a four-session skid.

There also appears to be somewhat of a concern that the market has priced in too fast a pace of interest rate hikes from the Bank of England following the central bank's most recent monetary policy meeting. The labor market could become overheated, causing an inflation problem down the road.

Two-year US Treasury yields climbed to their highest level since October 2008 after Yellen said late on Tuesday it would be "imprudent" to keep rates on hold until US inflation hit two per cent.

Her remarks "boosted hopes for an additional Fed rate hike within the year", an official at a currency margin trading service provider said. Markets are pricing in a 76% chance the Fed will raise borrowing costs in December, compared with less than 20% only a month ago.

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Most of the money that members of the middle class would gain from the tax cut will be taken away due to eliminated deductions. In addition, the framework raises the bottom tax rate from 10 to 12 percent, which primarily affects low-income households.

South Korea's Kospi lost 0.07% to 2,372.57, while the Hang Seng Index in Hong Kong added 0.47% to 27,642.43. While analysts expect not much will be done immediately, with the absence of other headline-dominating news, it will still be the key event.

In data on Tuesday, the US CB consumer confidence came in at 119.8 for September, which was close to the expected print but below August's reading of 120.4.

On the domestic front uncertainty around who will form the next government after no party won a clear majority in Saturday's election is weighing on sentiment but Slabbert said the overall U.S. dollar resurgence and risk appetite are really what's driving the market and will likely outweigh any election outcome.

The gold price has been establishing higher lows and higher highs this year.

Gold is highly-sensitive to rising USA interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the greenback. The retreat follows back-to-back session gains on the heels of tensions between the USA and North Korea. In other safe-haven assets, yields on United States 2-year treasuries reached the highest level since October 2008 and gold dipped to a one-month low of $1,283.68 per ounce.

Among other precious metals, silver rose 0.3 per cent to $16.81 per ounce.

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