Dollar stands tall with March Fed rate hike in sight

Andrew Cummings
March 4, 2017

After regional Fed officials during the week mostly signalled the likelihood of a second policy rate rise in the past three months, in a speech on Friday Yellen confirmed the view that rates may rise at the next Fed meeting on March 14-15 barring any sharp deterioration in economic conditions.

"At our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate", Yellen said in a speech in Chicago.

Another feature this week are rising USA and world bond market yields, on ideas of increasing inflationary pressures and rising interest rates.

Data on Wednesday showed United States consumer price inflation jumped 0.4 per cent in January, the largest increase since February 2013, while consumer spending increased 0.2 per cent. They also have a major impact on the global economy and financial markets.

"If Yellen's and Fischer's comments are equally optimistic as those of their colleagues, we could see that probability increase further, something that could add more fuel to the latest dollar rally, at least ahead of next week's employment report", Pissouros said.

On Tuesday, two influential Fed policymakers, William Dudley and John Williams, encouraged dollar bulls with comments that suggested rate-setters are anxious about waiting too long in the face of pending economic stimulus from Washington. Boockvar cited Dudley as well as comments made by other Fed members for the change.

In her comments, Yellen also said rates are likely to risefaster this year as the economy for the first time in her tenureappears clear of any imminent hurdles at home or overseas. "However, given how close we are to meeting our statutory goals, and in the absence of new developments that might materially worsen the economic outlook, the process of scaling back accommodation likely will not be as slow as it was in 2015 and 2016".

The Fed has long said it expects three rate increases this year.

The stock market, in the meantime, has been setting a string of record highs, fueled by confidence that Trump's plans for cutting taxes and boosting spending will win congressional approval.

Spot silver was flat at $18.31 an ounce, platinum fell 0.3 percent to $1,022.50 and palladium gained 0.5 percent to $772.50.

If it does start rising quickly, that would force the Fed to raise rates faster.

Thursday will see the publication of the Eurozone's January unemployment rate, which is projected to remain at 9.6%.

High yielding emerging market currencies including the South Korean won, South African rand and Brazilian real have also performed strongly this year despite the rise in Treasury yields.

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