Published: Sat, March 04, 2017
Science | By Kerry Wheeler

Fed Rate Hike Bets Trigger Euro US Dollar Exchange Rate Losses

Fed Rate Hike Bets Trigger Euro US Dollar Exchange Rate Losses

Gold has been under pressure from the increasing likeliness of a lift in United States interest rates at this month's Federal Reserve meeting, due March 15, which has picked up sharply following comments from Federal Reserve policymakers that point to an early interest rate hike.

Stock markets in Asia were also pulled lower, with MSCI's broadest index of Asia-Pacific shares outside Japan off nearly 0.3 per cent in early trade.

"If the Fed goes ahead with a faster pace of rate hikes and shrinks its balance sheet, it will weigh on stock prices", said Minori Uchida, chief FX analyst at Bank of Tokyo Mitsubishi UFJ.

Real estate companies led US stock indexes slightly lower in early afternoon trading Friday, extending the market's losses from a day earlier.

Expectations for pro-growth policies have fueled business and consumer optimism and sent the stock market soaring.

The Dow Jones industrial average fell 12 points, or 0.1 percent, to 20,990 as of 12:51 p.m.

Hong Kong sank 0.6 percent in the afternoon while Shanghai ended 0.4 percent off, Seoul slipped 1.1 percent, Singapore shed 0.7 percent and Sydney dived 0.8 percent.

For now, anyway. Often higher interest rates might be seen as a negative, but indications that the US Federal Reserve Board (Fed) is set to increase interest rates in March only served to drive share prices higher.

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While Yellen couched her remark in conditional terms that depend on economic data, she preceded it by citing a job market that has been "strengthening" and inflation that has been "rising toward our target" of 2% annually.

Yields on USA 10-year Treasuries, which move inversely to price, were 0.9 basis points higher on Friday in Asia at 2.4869.

In his first address to a joint session of Congress late Tuesday, Mr. Trump said he wanted to boost the US economy with a "massive" tax relief, make a $1-trillion effort on infrastructure and overhaul Obamacare.

The dollar index, which measures the greenback against a basket of six major peers.DXY was last up 0.1 percent at 101.45. Not all analysts agree with the Fed's bullish sentiments, citing doubts about the detail of the Trump administration's growth plans and excessive market optimism around fiscal stimulus.

Traders will be keeping their ears open for clues about the possibility of a rate hike at the conclusion of the Fed's upcoming meeting.

The decision helped French stocks, already doing well after strong earnings reports, climb 1.7 per cent to a 15-month high.

At the same time gains in mining and bank stocks took Britain's blue-chip FTSE 100 index to an all-time high, buoyed by USA rate rise expectations and higher metals prices.

The Australian dollar reversed earlier losses to trade fractionally higher at US$0.7659 after data showed gross domestic product beat expectations to grow 2.4 per cent from a year earlier. The federal funds rate remained near zero for several years as the USA economy recovered from the financial crisis, Rates were finally moved in December 2015 and again 12 months later.

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