March on with a hike?

Andrew Cummings
March 2, 2017

But the minutes stopped short of suggesting a rate increase was likely at the Fed's next meeting, in mid-March.

'However, despite the recent surge in exports, the sector continues to rely mostly on domestic demand and with price rises feeding through on the back of growing input costs, even with their recent easing, inflationary pressure continues to hover with intent, ' he added.

A green light from the wage data would do more than significantly increase the probability of a March rate hike.

A handful of Federal Reserve policy makers on Tuesday jolted markets into higher expectations for a March U.S. interest rate increase, with comments that suggested rate-setters are anxious about waiting too long in the face of pending economic stimulus from Washington. On the data front, US consumer price inflation jumped in January by 0.4 percent, the largest increase since February 2013, while consumer spending increased 0.2 percent in the month.

There's now a 68.4 percent probability the Fed will increase the federal funds rate at its policy meeting on March 14 and 15.

Yesterday's hawkish comments by New York Fed President William Dudley that "the case for tightening has become a lot more compelling" has given us confidence that the FOMC heavyweights are convinced the time is right for another lift in the Fed funds rate.

There hasn't been much in the way of economic news in the past few days.

Dudley didn't predict whether the central bank will hike rates this month or in May. EUR & CHF have also gained against the Dollars, but the extent of the moves have been small only.

Asian equities and the United States dollar strengthened, while gold, the Japanese yen and core bonds fell during Wednesday's Asian session in response to Trump's speech, reflecting an easing of risk sentiment.

The U.S. currency quickly rose 0.4% against the yen to an intraday high of Y114.16 from Y113.74 late Wednesday in NY, following the remarks by Federal Reserve Governor Lael Brainard. The Australian dollar was also supported by upbeat Chinese manufacturing PMI which rose to 51.6 versus the expected 51.2. Data showed gross domestic product (GDP) climbed 1.1 percent in the fourth quarter.

The main focus of the markets was US President Donald Trump's testimony in front of Congress. Trump's speech was optimistic about the US economy and markets welcomed his pro-growth agenda.

Dow Jones closed up by 1.44 percent, S&P 500 ended up 1.36 percent, Nasdaq finished the day up by 1.33 percent.

Federal Reserve Governor Lael Brainard said late on Wednesday an improving global economy and a solid US recovery mean it will be "appropriate soon" for the Fed to raise rates. That drove the return for holding dollars on the debt market higher, with 10-year Treasury yields last up around 5 basis points at 2.411 percent. After a string of record negative interest rates in Germany last week, 2-year German government bonds found their footing, at least for now.

U.S. West Texas Intermediate (WTI) futures for April delivery settled at $53.83 a barrel, down 18 cents or 0.3 percent.

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