Dollar rallies on odds of a Fed rate hike

Chairwoman Janet Yellen’s speech is consistent with expectations

THE DOLLAR rose to a threeweek high against the yen yesterday, while bond yields surged to their highest since June and stocks sold off after senior Federal Reserve officials indicated a US interest rate increase was on the cards in the near term.

The Fed has been swaying back and forth on whether to raise rates this year, keeping investors across the globe on tenterhooks. But last Friday, at the Fed’s annual gathering for global central bankers, Fed chairwoman Janet Yellen gave one of the clearest indications that a rate hike was probably round the corner.

She said the case for an interest rate hike had strengthened in recent months as the labour market and economy improved. And while she gave no hints on the timing, Fed vice-chairman Stanley Fischer said Yellen’s speech was consistent with expectations for possible rate hikes this year.

“Fischer confirmed the broad view on the Fed Open Market Committee that the economy has strengthened… (and) rates should be raised gradually; possibly… next month if this week’s employment report supports a rate rise,” said Stewart Richardson, the chief investment officer at RMG Wealth Management. Higher rates The odds of a hike in September rose to 33 percent following the comments, from 21 percent last Thursday, according to CME Group’s FedWatch tool.

The prospects of higher US interest rates saw European shares lose ground. Germany’s The odds of a hike in September following Fed comments weeks, as the yen weakened against the resurgent dollar.

The dollar rose 0.5 percent to a three-week high of ¥102.39 (R14.41). That followed gains of 1.3 percent last Friday, its biggest one-day advance in almost seven weeks. The dollar index was up at 95.724.

Treasury yields rose, to their highest since June, dragging German Bund yields higher. The yield on Germany’s benchmark 10-year bond briefly rose more than 6 basis points to minus 0.025 percent – the highest level since June 24.

“We’re still cautious about the scope for a September rate hike, but it is increasingly becoming a close call,” said Martin van Vliet, a senior rates strategist at ING.

Investors will turn their focus to a slew of US data this week before the jobs report on Friday. Among the releases to be scrutinised will be US consumer confidence for this month, due today, while productivity, manufacturing and construction figures are due on Thursday. Global factory activity surveys will also be released on Thursday.

Crude prices fell on the back of a rally in the dollar and concerns about growing output after exports from Iraq this month exceeded July levels.

Iran also said late last week that it would only co-operate in upcoming producer talks in September if other exporters recognised Tehran’s right to regain market share lost during international sanctions that were only lifted in January.

US crude futures fell 1.7 percent to $46.84 (R671.38), while Brent crude also fell by a similar margin to $49.08.

Spot gold slipped 0.1 percent to $1 319, after earlier touching a five-week low. – Reuters